Definition of "Disposition of Shares"
"Disposition" means to get rid of an asset by selling, assigning or transferring to another person or entity. Therefore, "disposition of shares" means to dispose of or sell your shares. The most typical way for you to sell your shares is by placing a sell order through your brokerage firm, but there are other ways to dispose of your shares.
Disposition or Sale
As an owner of shares of stock in a publicly traded corporation, you are considered a shareholder. When you sell some or all of your shares in that company, the more technical term for that transaction is a disposition of your shares. The term "disposition" conveys a transfer of ownership of your shares -- you relinquish your ownership of that stock. Disposition can also refer to the sale of any shares you use as collateral for a loan, either by you or by the creditor holding it as collateral. For example, if your broker sells shares in your margin account to meet margin requirements, that would also be considered disposition of shares.
If you look at the Edgar database maintained by the Securities and Exchange Commission, you will see notifications of stock option conversions or sales. The SEC requires companies to report these legal insider trades to the SEC as the disposition of shares --or options converted to shares -- to company executives and members of the board of directors.
In addition to selling your shares, you can assign or transfer your shares to a person or an entity. For example, you can transfer your shares to a charity. Doing this enables you to avoid taking a capital gains tax hit on the shares while allowing you to reap the full benefit of the stepped-up basis on the stock. For example, you bought stock for $10,000 and later transfer it to a charity when it is worth $25,000. You pay no income tax on the $15,000 gain, yet you can deduct the full $25,000 value as a charitable contribution on your tax return.
Assign and Transfer
You can also transfer your shares to trusts, corporations and family members. When you transfer instead of sell your share, you must legally document this transfer. To do this you must complete a legal agreement in which you assign your shares to another person or entity. In addition, you may be required to assign your shares if you buy or sell certain options. For assignments and transfers to charities, trusts, corporations and other individuals, consult with an attorney and accountant to properly structure the transfer and minimize adverse tax consequences.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.