6

I bought shares from a private company before leaving it. They send me certificate for what they call "Common Stock".

Now the company was bought by another public company. I received a binder (more like a legal novel) all I could understand form it is: "All shares other than share of Series C Preferred Stock were canceled...", "You are not entitled to receive any cash...", "you have certain rights under Delaware law to seek appraisal of your stock..."

Can you please help me figure out answers to following questions:

  1. Can they do that? Can they just cancel shares? I pulled up my stock option agreement and it clearly says under Change of Control section "the Options, shall be assumed by, or replaced with comparable options by, the surviving corporation."

  2. What is that appraisal of stock do?

  3. If I can't recover the money I spent is it possible to deduct them on taxes?

Thanks!

  • 1
    This question appears to be off-topic because it is about a legal issue. Did you have shares or options? Your #1 is about options, but you're talking about stock shares everywhere else. In any case, this is a question to a lawyer who have read that binder of yours. – littleadv Nov 23 '14 at 1:21
  • Sorry, didn't know there is stackexchange for legal. Kind of was thinking it is all about money at the end. They use shares, options and stock almost interchangeably in the documentation. But I think we are talking about Options. Yeh, we are not talking about huge amount of money so I'm not sure I need to involve lawyers... – user567068 Nov 23 '14 at 16:05
  • The thing is that we can't really answer your question without knowing what's in that binder. It is a legal document and you should consult an attorney. These sales agreements don't all look alike, and there may be subtle clauses that may affect you tremendously. @Tom's answer is pretty generic, but it may or may not be relevant to your specific case. – littleadv Nov 23 '14 at 22:27
5

It seems like this was a "stock for stock" transaction. That is, your company was acquired, not for cash, but for the stock of Company X in a deal that your company's board of directors "signed off" on.

Your company no longer exists, and that's why your stock was cancelled. The acquirer will be sending you an equivalent amount of stock in their Company, X.

You don't need to worry about taxes, only accounting, because this is a "non-cash" transaction. What this means that your cost basis in the stock of Company X will be what you paid for the original company's stock (not its value on the day of the merger, which may be higher or lower than what you paid).

  • Sorry I should have gave more information. It was acquired for cash. Company continue to exist a subsidiary. They won't send me anything. :( They only send to whoever owned Preferred Stock. All the Common Stock was canceled. Thus, the question. – user567068 Nov 23 '14 at 16:01
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    @user567068 many times in startups investors have "preferred" terms (hence "preferred" stocks) which mean that they will be paid out first, and common shareholders (you) will only be paid out after all the preferred owners were compensated. If that compensation doesn't cover the preferred stockholders rights - you end up with nothing, which seems like what has happened to you. But again - you should bring that binder to a lawyer to get a proper explanation of your specific case. – littleadv Nov 23 '14 at 22:29

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