Understanding Cash in Lieu of Fractional Shares

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It’s not uncommon for publicly-traded companies to restructure based on changing market conditions or share prices. When companies merge, split their stock, or acquire competitors, it can raise the question of how to consolidate or restructure the company’s stock.

If such a corporate action generates fractional shares, the company’s leadership has a few options for how to proceed: They could distribute the fractional shares, round up to the nearest whole share, or pay cash in lieu of fractional shares.

What is Cash In Lieu?

stock price, or both.

There are several company events that can lead to investors receiving cash in lieu of fractional shares.

Stock Split

A stock split occurs when a company’s board of directors determines that their company’s strongly performing stock price may be too high for new investors. To make the stock price look more attractive to more investors and gain more liquidity and marketability, a stock split is executed to artificially lower the stock’s price by issuing more shares at a fixed ratio while maintaining the company’s unchanged value.

Depending on the predetermined ratio, a stock split could cause fractional shares to be generated. For example, a three-for-two stock split of a stock worth $111 would create three shares for every two shares each investor holds. Thus, a stock split would cause any investor with an odd number of shares to receive a fractional share.

However, if the company’s board isn’t keen to hold or deal with fractional shares, they will distribute investors’ whole shares and liquidate the uneven remainders, thus paying investors cash in lieu of fractional shares. The ratio or cash rate as set by the company performing the stock split can be located on the company’s corresponding SEC 8-K document.

reverse stock split because a stock’s prices are too low and they want to artificially raise them. If stock prices get too low, investors may become fearful to buy and the stock risks being delisted from exchanges.

When a stock undergoes a reverse stock split, each share is converted into a fraction of a share but higher-priced shares are issued to investors according to the reverse split ratio . For example, a stock valued at $3.50 may undergo a reverse one-for-10 stock split. Every 10 shares is converted into one new share valued at $35.00. Investors who own 33 shares or any number indivisible by 10 would receive fractional shares unless the company decides to issue cash in lieu of fractional shares.

Companies may notify their shareholders of an impending reverse stock split on Forms 8-K, 10-Q, or 10-K as well as any settlement details if necessary.

Merger or Acquisition

Company mergers and acquisitions (M&As) can also create fractional shares. When companies combine or are absorbed, they combine new common stock using a predetermined ratio, which often results in fractional shares for investors in all involved companies.

In these cases, it’s rare for the ratio of new shares received to be a whole number. Companies may opt to return whole shares to investors, sell fractional shares, and disburse cash in lieu to investors.

Spinoff

If an investor owns shares of a company that spins off part of the business as a new entity with a separately-traded stock, shareholders of the original company may receive a fixed amount of shares of the new company for every share of the existing company held.

How Is Cash in Lieu of Fractional Shares Taxed?

Just like many other forms of investment profits, cash in lieu of fractional shares is taxable , even though it was acquired without the investor’s endorsement or action. The stock’s company may send investors a check followed by an IRS Form 1099-B at year-end with a “cash in lieu” or “CIL” notation.

Some investors may simply report the payment on the IRS Form 1040’s Schedule D as sales proceeds with zero cost and pay capital gains tax on the entire cash settlement. However, the more accurate and tax-advantageous method would apply the adjusted cost basis to the fractional shares and pay capital gains tax only on the net gain.

Looking to Trade Fractional Shares?
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How to Report Cash in Lieu of Fractional Shares

Calculating the cost basis for cash in lieu of fractional shares is a little tricky due to the change of share price and quantity. The new stock issued is not taxable nor does the cost basis change, but the per-share basis does.
Consider the following example:

•  An investor owns 15 shares of Company X worth $10.00 per share ($150 value).
•  Investor’s 15 shares have a $7.00 per share cost basis ($105 total cost basis).
•  Company X declares a 1.5 stock split.

The investor is entitled to 22.5 shares valued at $6.67 each but the company states they will only issue whole shares. Therefore, the investor receives 22 shares plus a $2.73 cash in lieu payment for the half share.

The investor’s total cost basis remains the same, less the cash in lieu of the fractional shares. However, the adjusted cost basis now factors in 22 shares instead of 15, equaling a $4.66 per share cost basis and a $2.33 fractional share cost basis. Finally, the taxable “net gain” for the cash payment received in lieu of fractional shares equates to $2.725 – $2.33 = $0.39.

The Takeaway

It’s not always possible to anticipate a company being restructured and how it will affect shareholders’ stock. In the event the company doesn’t wish to deal with fractional shares, it’s important for shareholders to understand the alternatives such as cash in lieu of fractional shares, and how it affects them. While cash in lieu can be burdensome, investors can be made whole and can then proceed on their own accord.

There are many reasons investors consider fractional shares worth buying to add to their investment portfolio. For individuals looking to invest in fractional shares with the help of a simple account setup and no fees, SoFi Invest® can help.

Find out how SoFi Invest can help you reach your financial goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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A Cozy New Rug Collection

Hello friends! Praise be, the election is over and I just marked my birthday over the weekend – my official holiday season milestone. Whenever the calendar passes November 8, I feel like I can finally turn 100% of my attention to all things holiday. Obviously, the holidays are going to look and feel very different than years past. Perhaps instead of the holiday season, we should start referring to the next few months as the hunker down season. Because that’s what holidays in the time of Covid are going to require of us. But I’m not entirely mad about the idea of holing up at home. I’ll take a very valid excuse to look for ways to make my home as cozy, comforting, and beautiful as possible.

Enter the new rug collection from Beni Rugs, designed by my style soul twin, Colin King.

A Cozy New Rug Collection on Apartment 34A Cozy New Rug Collection on Apartment 34

Called the Shape of Color, this new rug collection offers eleven Moroccan style rugs. Each rug features shocks of color inspired by Tangier and Marrakech. The hues are deeply saturated in simple geometric shapes or big bold stripes.

A Cozy New Rug Collection on Apartment 34A Cozy New Rug Collection on Apartment 34

While I typically eschew color, rugs are a wonderful spot to inject something fresh into a room. I used a bold colored rug in my own living room. The particularly nice thing about a rug – it’s an easy way to reenergize a space without really having to change anything else.

A Cozy New Rug Collection on Apartment 34A Cozy New Rug Collection on Apartment 34 A Cozy New Rug Collection on Apartment 34 A Cozy New Rug Collection on Apartment 34

There are a few secrets to picking out a rug. First, you want to think about size. A common mistake is getting a rug that is too small. You want all (or nearly all) your furniture in a space to sit on your rug. That helps a room feel anchored and like everything is working together. A too-small rug will actually make a small space feel even smaller!

Next, you want to think about foot traffic. If you’re looking to put a rug in a high foot traffic area, you’ll want to ensure any rug you select will withstand an onslaught of dirt and use.

Finally, when adding a colorful rug to your space you don’t need to “match your decor. You just want to keep everything in the same design family. Do you decorate with mostly warm colors or cooler tones? That will help you pick your colors.



 

If you’re looking to upgrade the coziness of your home before the holidays hit, I definitely think one of these rugs would be a great way to do it. I’m already debating which one I might add to our house. I do have a home office refresh in the works! If I pick out one of these rugs – I’ll be sure to share.

How are you planning on sprucing up your spaces for the holidays?

images c/o beni rugs

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Investing With the Business Cycle

Investing With the Business Cycle

A “business cycle” refers to the periodic expansion and contraction of a nation’s economy. Also known as an “economic cycle,” it tracks the different stages of growth and decline in a country’s gross domestic product, or economic activity.

business cycles . Each business cycle is dated from peak to peak or trough to trough of economic activity.

During the expansion phase of the business cycle, GDP increases and the economy grows. This phase tends to be significantly longer than the contraction phase. Since 1945, the average expansion has been 65 months, while the average contraction has lasted 11 months, according to a congressional research report. Features of expansion periods include:

•  GDP growth rate of 2-3%
•  Inflation around 2%
•  Unemployment between 3.5-4.5%
•  Bullish stock market
•  Increased demand for goods and services
•  Interest rates move higher
•  Job creation
•  Stock prices usually increase
•  Increased wages
•  Increased real estate values

As economic growth slows down, an economic contraction begins as the nation enters a recession. GDP growth dips below 2% in this phase.

Companies that have taken out loans may struggle to repay them, so they have to lay off workers and slow down production. As workers lose jobs, they have to cut down on spending. This creates a cycle of economic decline. Features of contraction periods include:

•  GDP growth falls below 2%
•  Decreased demand for goods and services
•  Interest rates move lower, making it easier to borrow money
•  Loss of jobs, increased unemployment
•  Reduced wages because people need jobs so they’re willing to work for less, and companies can’t pay as much
•  Stock prices usually decline
•  Real estate values plateau or decline

Stage 1: Recession

One definition of a recession is two consecutive quarters with a decline in real GDP. A recession could actually be defined more broadly as a period where there is significant decline in economic activity throughout the entire economy.

During this stage, GDP, profits, sales, and economic activity decline. Credit is tight for both consumers and businesses due to the policies set during the last business cycle. This leads to shifts in monetary policy that lead to a recovery phase. It’s a vicious cycle of falling production, falling incomes, falling employment, and falling GDP.

The intensity of a recession is measured by looking at the three D’s:

•  Depth: The measure of peak to trough decline in sales, income, employment, and output. The trough is the lowest point the GDP reaches during a cycle. Before World War II, recessions used to be much deeper than they are now.
•  Diffusion: How far the recession spreads across industries, regions, and activities.
•  Duration: The amount of time between the peak and the trough.

A more severe recession is called a depression. Depressions have deeper troughs and last longer than recessions. The only depression that has happened thus far was the Great Depression, which lasted 3.5 years, beginning in 1929.

Stage 2: Early Cycle

Following a recession, there tends to be a sharp recovery as growth begins to accelerate. The stock market tends to rise the most during this stage, which generally lasts about one year. Interest rates are low, so businesses and consumers can borrow more money for growth and investment. GDP begins to increase.

Just as a recession is a vicious cycle, a recovery is a virtuous cycle of rising income, rising employment, rising GDP, and rising production. And similar to the three D’s, a recovery period, which includes Stages 2-4, is measured using three P’s: how pronounced, pervasive, and persistent the expansion is.

Stage 3: Mid-Cycle

This is generally the longest phase of the business cycle, with moderate growth throughout. On average the mid-cycle phase lasts three years. Monetary policies shift toward a neutral state: Interest rates are higher, credit is strong, and companies are profitable.

Stage 4: Late Cycle

At this stage, economic activity reaches its highest point, and while growth continues, its pace decelerates. Monetary policies become tight due to rising inflation and low unemployment, making it harder for people to borrow money. The GDP rate begins to plateau or slow.

Companies may be engaging in reckless expansions, and investors are overconfident, which increases the price of assets beyond their actual value. Late cycles last a year and a half on average.

What Industries Do Well During Each Stage?

Historically certain industries have prospered during each stage of the business cycle.

When money is tight and people are concerned about the economy, they cut back on certain types of purchases, such as vacations and fancy clothes. Also, when people anticipate a coming recession, they tend to sell stocks and move into safer assets, causing the market to decline.

Basically, industries do better or worse depending on supply and demand, and the demand for certain products shifts throughout the business cycle. In general, the following industries perform well during each stage of the business cycle:

Recession

•  Healthcare
•  Consumer staples
•  Utilities
•  Bonds

Early Cycle

•  Information technology
•  Financial sector
•  Industrial sector
•  Consumer sector
•  Stocks and bonds
•  Real Estate
•  Household durables

Mid-Cycle

•  Information technology
•  Stocks
•  Energy and materials
•  Media

Late Cycle

•  Commodities such as oil and gas
•  Bonds can be a safe haven
•  Index funds

Who Should Invest With the Business Cycle?

Business cycle investing is an intermediate-term strategy, since it isn’t as short-term as day trading but not as long-term as buy and hold strategies. Each stage of the business cycle can last for a few months to a few years.

the best strategy for beginner investors.

However, more experienced investors might choose to shift at least a portion of their portfolio along with the business cycle. Business cycle investing can also be a good option for younger investors because they will have more opportunities to take advantage of the ups and downs of future cycles.

Understanding the business cycle can also help people make decisions such as when to buy a home or search for a job. It’s usually best to purchase a home, start a business, or look for a job in the early to mid-stages of the cycle.

The Takeaway

No business cycle is identical but history shows there can be a rough pattern to which industries do better as the economy expands and contracts. Investors can take cues from which stage of the business cycle the economy is in in order to allocate money to different sectors.

One great way to invest and keep track of the market is using an online investing app like SoFi Invest®. The investing platform features both active and automated investing.

For help getting started, SoFi has a team of professional financial advisors available to answer questions and offer guidance.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

A September State of Mind

A September State of Mind

Hi friends. So sorry to go completely MIA on you. Between attempting online school with a five-year-old, much of California burning to the ground, and the general state total chaos in which we find ourselves, getting to the computer for any length of time has been a bit of challenge, to put it mildly. And then I blinked and summer is officially over.

But I had to finally get on here as I have big news for you!

They say you shouldn’t make major life decisions during times of extreme stress, right? Well, we decided to throw all caution to the wind and instead have purchased a coastal cottage in Washington State! Apparently a global pandemic, homeschooling a kindergartner and the most consequential presidential election of our lifetime wasn’t enough to keep me busy.

coastal cottage mood board on Apartment 34

In all seriousness, if the past seven months of Covid have taught us anything, it’s the importance of friends and family and so we decided to create a gathering place that can bring together those we love most for years to come. Nestled within the myriad of inlets and islands that dot the Puget Sound north of Seattle, the cottage enjoys sweeping views of the Olympic mountains and Hood Canal. I consider it my official respite from the impending doom. Sadly it looks nothing like the inspiration images I’ve collected here.

Instead, it is going to take a LOT of work to get our little coastal cottage visitor ready – and in a very short period of time. Over the coming weeks, I plan to take you along on the entire design journey. I will be sharing everything with you – from the cottage’s current state, to all of my design inspiration and through the remodel process. If all goes according to plan, I’ll share a major before and after reveal in time to spend the holiday season with our family rather than more than 800 miles away.

coastal cottage mood board on Apartment 34

Trust me, we’re going to have plenty to discuss, as I have to pick an entire household’s worth of things – from paint colors and kitchen cabinets down to dishware, bedding and everything in between. No design decision will be left unturned. It’s both exhilarating and incredibly daunting. These mood boards are just part my first ideation session for my dream vibe.

I’m hopeful sharing this process with you will offer you some fresh design ideas and positive inspiration as we all hunker down to weather what will undoubtedly be a stormy fall – be it literally or just politically. It’s been a rather dark year and I feel like this might be a way to share a little bit of light. I know I am very happy for the creative distraction. I hope you are too.

I can’t wait to share more very soon!

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Source: apartment34.com

Convertible Furniture for Small Spaces | ApartmentSearch

Convertible Furniture for Small Spaces | ApartmentSearch

Helix California King bedroom setLook, we get it: you need space. You also need furniture. Luckily, there’s a way to get both without cramping your style! Convertible furniture lets you stay hip with your furniture while maximizing space in your tiny apartment.

#1: The Cedar Storage Ottoman

An ottoman is great as a footrest or seat. This one from CORT acts as a double agent. The hinged top is padded and covered in black leather, making it a smart and stylish seat that opens to a cedar-lined storage area for everything from games and magazines to extra blankets. Park it in the bedroom, hallway, or living room.

#2: The Connection Sleeper Sofa

Don’t sleep on the sleeper sofa (metaphorically, of course)! The Connection Sleeper Sofa—another one from CORT—will have you snoozing, sitting, and snuggling your pupper all on one amazing piece of furniture. The Connection Sleeper Sofa transitions seamlessly from bed to couch and back again in the blink of an eye. Plus, you’ll have your ottoman for linen and blankets!

#3: The Helix California King Bed

Did someone say sleep? With the Helix California King Bed from CORT, you can drift off to sweet dreams knowing you’re maximizing storage space in your tiny apartment. Think you won’t have any room to move with a king bed? Think again! This bed comes with ample storage underneath while maintaining its sleekness, sophistication, and luxuriousness—fit for royalty.

#4: The Ridley Nesting Tables

Though not necessarily convertible, the Ridley Nesting Tables are so multi-purpose we’d be remiss to exclude them. These unique tables can fit into each other to save space, or be spread out around your apartment to maximize useful surface area. Stack a set in the corner to make a tiered shelf. Use two as bedside tables and the other one in your living room for drinks. Or even bust them out during dinner as TV eating trays for mom, dad, and the little one!

#5: The Bianca Cabinet

Here’s another piece of furniture so versatile we had to include it. The Bianca Cabinet adds valuable storage to any room in even the smallest apartment. Use it as a TV stand in the living room and store games in its drawers, or use it as a dresser in your bedroom and keep pictures on its shelves. The possibilities are practically endless with the magical Bianca Cabinet.

If you’re getting ready to move into your first apartment, find out which furniture you’re definitely going to need, so you can start planning.

With CORT furniture rental, you can find convertible furniture and more for any room in your house or apartment. Choose from a variety of sizes, colors, and styles to find the perfect furniture for you. Need more space than even convertible furniture from CORT can provide? Search for a bigger apartment among hundreds of options across the country on ApartmentSearch.

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Source: blog.apartmentsearch.com