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My startup was acquired. Some of the shareholders of my

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company were option holders who...
My startup was acquired. Some of the shareholders of my company were option holders who exercised into common. Some of these are also non-US citizens- living off shore. Question: when distributing sale proceeds, is there a withholding requirement and if so, who is responsible (my company or the acquiring company)?
For clarification, the acquisition was a combination of cash and stock in the acquiring company in exchange for all of the shares in my company (i.e., it was NOT an asset sale)
Submitted: 2 years ago.Category: Tax
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Customer reply replied 2 years ago
Also FYI- This is a tech company w/ no real estate assets. Incorporated in DE.
Answered in 7 hours by:
9/24/2015
Tax Professional: Jonathan Tierney, Certified Public Accountant (CPA) replied 2 years ago
Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 322
Experience: Tax Accountant at Praxair, Inc.
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Is this corporation a C corporation? Not a S corp?

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Customer reply replied 2 years ago
C Corp. Common stock only
Tax Professional: Jonathan Tierney, Certified Public Accountant (CPA) replied 2 years ago

Since this a stock sale, it would be the acquiring corporation's responsibility to collect W-9's (for U.S. persons) and W-8's (for foreign persons) from each of the shareholders. If a shareholder does not complete a W-9 or W-8, the backup withholding is required. There is generally no withholding on sales of securities, even to nonresident aliens, though a 1099-B is required to be issued to U.S. persons. See Publication 515 found here: http://goo.gl/dcgWG6.

Just curious, why do you think the acquired corporation would be responsible for withholding. I would assume it does not take possession of the cash or stock, but rather the acquiring corporation sends it to the old shareholders. Furthermore, once the transaction closes, the acquired corporation is under new managment, so it would be able to do anything anyway. However, the acquiring corporation could require you to cooperate in identifying your shareholders and turning over any W-9s or W-8 you might have already obtained.

I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions, and I would greatly appreciate positive feedback. Thanks, Jonathan

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Customer reply replied 2 years ago
Thanks Jonathan,Regarding your question about why the acquired company would withhold, it is a long story. But the short answer is that the funds were wired to the acquired company's bank before the transaction closed, so these funds need to be distributed by "us", not "them:. I guess "they" would still be responsible for the W-9, W-8's but I am trying to help where I can.
Tax Professional: Jonathan Tierney, Certified Public Accountant (CPA) replied 2 years ago

The IRS would expect the acquirer to issue the 1099s, but under your purchase contract they might have made you responsible for that.

Let me know if you have any other questions.

Thanks, Jonathan

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Jonathan Tierney
Jonathan Tierney
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