short-term capital gain

Receipt Of Stock In A Demutualization

Demutualization is the process in which a member-owned business becomes owned by  shareholders. Traditionally, Insurance companies have used the word “mutual” in their name (i.e., Liberty Mutual) indicating mutually-held ownership by their policy holders as a group, rather than ownership by shareholders. These policyholders possess ownership rights such as voting and distribution. Recently, a strong trend has emerged for such companies to demutualize, converting to a shareholder-held ownership base.

Typically, policy holders are offered shares or money in exchange for ownership rights. Demutualization increases the profit potential of shareholders who can sell or trade their stock, in contrast to mere ownership rights, which cannot be sold or traded. The term “demutualization” no longer applies to just insurance companies but  also to the process by which any member-owned organization becomes shareholder-owned.