Tender Offer

What it means

A tender offer is an invitation for you to sell your company shares for cash. Companies or outside investors offer to buy them at a set price, often before the company is listed on a public stock exchange.

This is a chance to get cash for your shares earlier than usual. It is completely optional, meaning you get to decide if you want to sell or keep your shares.

A simple example

Imagine you own 1,000 shares of company stock that you bought for $1 each. Your company offers to buy them back for $5 each. If you sell all 1,000 shares, you receive $5,000. You made a $4,000 profit. You will owe taxes on that $4,000 profit.

Why it matters to you

• Selling your shares provides you with immediate cash.
• Part of the money you receive may be taxed as regular salary, while other parts are taxed at lower rates based on how long you held the shares.
• If the company offers to pay more than the official current value of the shares, that extra amount may be taxed as extra pay (compensation).
• A tax professional can help you understand your total tax bill.

Common mistakes to avoid

• Forgetting that you must pay taxes on the profit you make from the sale.
• Assuming all money received is taxed the same way.

Words used on this page

• Capital Gain: The profit you make when you sell an asset, like a stock, for more than you paid for it.
• Fair Market Value (FMV): The official, current price of a share of stock determined by the company.
• Ordinary Income: Money you earn, such as your salary, that is taxed at your standard income tax rate.
• Withholding: Money taken out of your pay by your employer to cover your estimated tax bill.