stapled stock

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Stapled Stock

Shares of two publicly-traded companies operating under the same management that are traded as if they were one stock. Most of the time, certificates for each stapled stock are printed on the same stock certificate. Stapled stocks are put together usually if one share pays higher dividends while the other has the higher potential for appreciation. Variations on stapled stocks include HOLDRS, which issue stocks in more than two companies as one certificate. Stapled stocks are also called paired shares.

stapled stock

stapled stock

A relationship between a real estate investment trust (REIT) that owns real property,such as a hotel,and a standard corporation that leases or manages that property,ostensibly for a profit.But the arrangement is set up so the stockholders are the same for the REIT and for the operating company—the stocks are “stapled”together.As a result,they hypothetically do not care which company makes what size profit, as long as the aggregate profit is an acceptable number.There is one problem: the REIT profits are not taxable at the corporate level, but the corporation profits are taxed.As a result,the ideal situation would be for the operating company to pay exceptionally high rent, forcing it to just barely break even every year and owe no taxes, while the REIT collects high rents, makes large profits, and pays no taxes. Of course, distributions to shareholders are taxed as income to the hareholders for either entity.The practice was once widespread but now represents a now-closed loophole that is seldom encountered except for older transactions. It is necessary to understand the concept, however, because there are always novel arrangements attempting to accomplish the same goals and that describe themselves as similar to stapled stock.
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