What happens if I own shares in private company that is acquired?

Oct 3, 2020 7 Comments

I own shares in my previous company as I exercised my options after leaving (otherwise my shares would've expired).

That company is now going to be acquired in a cash and stock deal. The acquiring company will pay existing shareholders 55% in stock and 45% in cash.

Final piece of info is that this acquisition is expected to close more than a year after I exercised my options.

my question is...how will I be taxed for this event?

Is it correct that I will be taxed capital gains only for the cash component upon the deal closing AND capital gains on the stock component when I sell the shares that I receive from the acquiring company?

none of my gains should be taxed as income right?#investments # personal finance #tax

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  • You should seek real financial advice. However, if you have ISOs, and have not exercised them, then the 45% paid in cash will be taxed as regular income, as the capital gains clock starts when the options turn into stocks, not when they are granted. I think that you will also need to pay tax on the difference between your exercise price and the acquisition price on the 55% that is stock. probably also taxed aw income. So you will have to pay a lot of tax and will probably only make money after you sell the stock. This is why I always advise people to avoid ISOs, or to negotiate an early exercise clause into your contract.
    Oct 3, 2020 4
    • OP
      Thanks for your answer. That’s what I thought too but my colleague said that I would be taxed when the deal closes not when I sell because the company being acquired is private not public.
      Oct 4, 2020
    • Again, not an expert, but there would be no gain realized by swapping stock from one company with stock from another right?
      Oct 4, 2020
  • Obsidian Solutions Group LLC
    EEDude

    Obsidian Solutions Group LLC

    EEDude
    Ask a financial advisor, not an anonymous forum.
    Oct 3, 2020 1