I have inherited 100 shares (Class A non voting stock) of 10,000
shares issued by a Delaware registered corporation established in
1997. An IPO is planed for 2005/6 in which 10,000,000 shares shall be
issued. Does this mean that I shall by law automatically be allocated
1000 shares by the corporation for each share in my possession,
raising my stock to 100,000 shares or is my premise totally wrong?
Under the assumption that I?m right, what US taxes would be due
assuming the market price of the shares reaches 10$/share and I sell
all 100,000 shares? |
Request for Question Clarification by
omnivorous-ga
on
28 Apr 2004 08:10 PDT
Greatwit --
Your assumption concerning share holdings are NOT correct. The
company can sell holders shares in an IPO -- or can issue treasury
stock.
As for taxes: these depend on many factors:
* do you qualify for long-term capital gain treatment (though it
APPEARS that you do)
* amount of the gain
* alternate tax treatments
Best regards,
Omnivorous-GA
|
Clarification of Question by
greatwit-ga
on
02 May 2004 08:53 PDT
You say my assumptions are NOT correct. How frequently do the
possibilities mentioned in your statement occur? Won?t I be getting
1000 shares for each share in my possession following the split
(10,000/10,000,000)? Wouldn?t I be allowed to sell them on the open
market even if I had them?
In regard to your questions about tax:
1) I don?t know about long term capital gains (I?m European and not
resident in US)
2) In my case isn?t this amount equal to number of shares multiplied
by market price/share?
3) Alternative tax treatments? I?ve no idea what these could be
|
Request for Question Clarification by
omnivorous-ga
on
02 May 2004 09:50 PDT
Greatwit --
A company splitting shares has to do it on an equitable basis. So if
there's a 1,000:1 split, yes you'd receive 100,000 shares.
However, in virtually every IPO additional shares of treasury stock
are created to bring new investment capital into the company. So, in
this instance the company is likely to issue perhaps as much as 50% of
the 10 million shares in new stock.
I won't even attempt a guess as to taxes for a European holding stock
in an American company. But for Americans, alternate tax treatments
would include:
* income averaging
* alternate minimum taxes
* placement of shares in a trust
And any analysis of the taxes would include how much the original
investment was; whether there are offsetting losses; and of course the
key consideration of whether it was a long-term or short-term holding.
The investment site Motley Fool has a concise description of current
U.S. tax law regarding LT/ST capital gains:
http://www.fool.com/taxes/2003/taxes030613.htm
Best regards,
Omnivorous-GA
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