Technology Banking
growth | 3 minute read

To hold or not to hold: Public stock position tips

If the company you own or work for is being taken public through an IPO or being acquired, it’s important to fully consider how to manage the large concentrated stock position in your investment portfolio that may result.

Such a concentrated position can leave your investment’s performance exposed ― not only to the upside benefits of either the newly listed company or new parent company but also the downside risk and vagaries of the market in general.

As a result, carefully plan how to either liquidate your position or help reduce the risks associated with holding on to your concentrated position.

Liquidating your holding and repositioning your portfolio

The capital gains taxes due on the sale of your stock will be an important consideration as you decide whether to keep or liquidate your holding.

The amount of capital gains taxes you may have to pay will depend on how long you’ve owned the stock and the cost of that stock when it was awarded to you (its cost basis) versus its price post IPO or acquisition.

For stock you’ve held for less than 12 months, capital gains are taxed at your marginal income tax rate. The top income tax rate is currently 39.6% (as of 8/1/17). For stock held more than 12 months, long-term capital gains are taxed at 15% or 20%. Both long- and short-term capital gains are subject to an additional 3.8% surcharge on unearned income.

Gradual sales over a period of time may be an alternative to selling all at once, helping to spread potential gains and any resulting tax over a number of years.

Gradual sales over a period of time may be an alternative to selling all at once

Capital gains in any one tax year can be offset by unused capital losses carried forward from previous tax years, as well as by any capital losses realized in the year of sale.

Due to your role in the now-public company and access to nonpublic information, you may experience challenges in selling your stock. 10b5-1 plans offer a way for corporate executives to sell stock based on a pre-planned trading schedule to demonstrate that inside information was not a factor in the sale.

The plans can be customized from the outset to meet varying objectives. Once the plan is in place, however, there are limitations to the changes you can make. You may want to consider retaining your concentrated position and managing the risk of retention.

Managing the risk of retention

A number of strategies will allow you to monetize (provide liquidity) the risk of holding your concentrated position.

Many companies have restrictions in their trading policies preventing certain individuals, such as corporate insiders and executives, from entering into derivatives contracts. Thus, many executives will be precluded from hedging or pledging by using strategies such as puts, calls, and collars.

Always consult with your company’s compliance officer or corporate counsel on your organization’s trading policies.

Strategic planning is key

The IPO or acquisition of your company may be the most important financial event in your life. But helping maximize the potential long-term financial rewards of the liquidity event requires strategic planning.

We highly recommend working with your advisory team (tax accountant, financial professional, financial planner, estate attorney, and your company counsel) to help put a financial plan together prior to your liquidity event.

There is no “one size fits all” solution; the best solution will likely not be a single strategy but a combination of several strategies customized for your unique situation.

The strategies listed are not suitable for all investors, and there can be a high degree of risk with exposure to potentially significant loss.

Because of the importance of tax considerations to all options and stock transactions, consult with your tax advisor to evaluate how taxes can affect the outcome of contemplated options and stock transactions.

Congratulations on your company’s IPO or acquisition!

Additional information is available upon request.

Disclosures

Investment and Insurance Products: Not FDIC Insured. No Bank Guarantee. May Lose Value.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors and investors should consult their own attorneys and tax advisors with respect to their own situations.

Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.

Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

Because of the short-term nature of options, it is likely that they will be traded more frequently than stocks and bonds. With each option-related trade, a commission will be incurred. Commissions on option transactions generally amount to a higher percentage of the principal than commissions for normal stock trades.

Trading in options can result in losing the total amount of premiums and commissions paid. Additionally, when covered call options are sold, the underlying securities must be delivered at the strike price upon exercise of the option.

Additional information is available upon request.

©2019Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

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Disclosures

Securities Products:

Not Insured by FDIC or any Federal Government Agency

May Lose Value

Not a Deposit of or Guaranteed by a Bank or Any Bank Affiliate

© 2019 Wells Fargo Bank, N.A. All rights reserved. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC. Deposits held in non-U.S. branches are not FDIC insured.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.

© 2019 Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

© 2019 Wells Fargo Capital Finance. All rights reserved. Products and services require credit approval. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries.

Wells Fargo & Company conducts business outside the U.S. through various companies, including duly authorized and regulated subsidiaries and affiliates in Asia, Canada, and Latin America. In Europe, banking services are provided through Wells Fargo Bank International (WFBI), directly regulated by the Central Bank of Ireland, and Wells Fargo Bank, N.A. London Branch, authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. All products and services may not be available in all countries. Each situation needs to be evaluated individually and is subject to local regulatory requirements.

We provide links to external websites for convenience. Wells Fargo does not endorse and is not responsible for their content, links, privacy or securities policies.

Important notice regarding use of cookies: By continuing to use this site, you agree to our use of cookies as described in our Digital Privacy and Cookies Policy.

The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. Silicon Valley Top 150 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue

Disclosures

Securities Products:

Not Insured by FDIC or any Federal Government Agency

May Lose Value

Not a Deposit of or Guaranteed by a Bank or Any Bank Affiliate

© 2019 Wells Fargo Bank, N.A. All rights reserved. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC. Deposits held in non-U.S. branches are not FDIC insured.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.

© 2019 Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

© 2019 Wells Fargo Capital Finance. All rights reserved. Products and services require credit approval. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries.

Wells Fargo & Company conducts business outside the U.S. through various companies, including duly authorized and regulated subsidiaries and affiliates in Asia, Canada, and Latin America. In Europe, banking services are provided through Wells Fargo Bank International (WFBI), directly regulated by the Central Bank of Ireland, and Wells Fargo Bank, N.A. London Branch, authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. All products and services may not be available in all countries. Each situation needs to be evaluated individually and is subject to local regulatory requirements.

We provide links to external websites for convenience. Wells Fargo does not endorse and is not responsible for their content, links, privacy or securities policies.

Important notice regarding use of cookies: By continuing to use this site, you agree to our use of cookies as described in our Digital Privacy and Cookies Policy.

The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue.