Loading the player...

What does 'In Specie' mean

In specie is a phrase describing the distribution of an asset as is, rather than selling it and distributing the cash proceeds. In specie distributions are made when cash is not readily available or if allocating the physical asset is a better alternative than distributing cash.

In specie is a Latin word that stands for "in its actual form."

BREAKING DOWN 'In Specie'

The types of assets exchanged in transactions can vary widely and act as substitutes for cash. Either physical assets or financial assets can replace cash with in specie transactions. Companies or individuals can distribute land, equipment, or even inventory in lieu of cash for capital returns. Alternatively, financial assets such as stocks, bonds, warrants, or other securities can be distributed instead of cash to shareholders in a capital return program. An example of an in specie distribution is a stock dividend, which can be distributed to investors when cash is in short supply. It is common to see an in specie distribution made in the form of fractional shares such as 0.5 shares for each share held.

Benefits of In Specie Distributions

Companies often buy other companies by issuing stock to the seller instead of paying in cash, or compensate sellers with some combination of the two. One of the reasons for doing so may be that cash is in short supply for the buyer and raising additional capital is not optimal.

Another reason is for tax purposes. As a general matter, taxes are based on cash flows and paid on gains when they are realized. Paying for a company or an asset in stock instead of cash makes gains for the seller unrealized; thus, sellers do not have to pay taxes until they sell the buyer's stock after the transaction. Taxes usually have to be paid immediately for gains when they are realized or when cash is accepted in a sale transaction.

Example of an In Specie Transfer

Investors often hold securities in brokerage accounts or with financial advisors. If an investor wants to transfer those assets to another investment vehicle such as a trust, individual retirement account (IRA), or to another advisor, he can either liquidate the assets to realize the cash or transfer the assets to another account in specie. The latter avoids taxes and keeps the investor's portfolio intact. Selling the assets for cash, however, will likely set in motion a taxable event with the investor paying capital gains taxes on any appreciation.

RELATED TERMS
  1. Distribution In Kind

    A distribution in kind, also referred to as a distribution in ...
  2. Cash Distribution Per Unit (CDPU)

    Cash distribution per unit is a measure that refers to the amount ...
  3. Cash

    Cash is legal tender or coins that can be used to exchange goods, ...
  4. Cash Liquidation Distribution

    A cash liquidation distribution is the amount of capital that ...
  5. Cash Flow

    Cash flow is the net amount of cash and cash-equivalents being ...
  6. Cash And Cash Equivalents - CCE

    Cash and cash equivalents are company assets that are either ...
Related Articles
  1. Investing

    Beware Cheerios’ 'Bee-Friendly' Wildflower Seeds

    Food giant General Mills' effort to save a declining bee population had some kinks in it.
  2. Investing

    Corporate Cash Flow: Understanding the Essentials

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself. Learn how to read the cash flow statement.
  3. Retirement

    How You Withdraw Your Retirement Assets Matters

    Withdrawing your retirement income in the right order can help you make the most of what you have saved.
  4. Financial Advisor

    How to Save Clients from RMD Aggregation Mistakes

    Advisors can help clients avoid required minimum distribution mistakes in their retirement plans.
  5. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  6. Investing

    Understanding financial liquidity

    Financial liquidity comes into play for companies, your personal finances, investing, and the financial markets. However, assets and investments have varying liquidity levels.
  7. Investing

    Cheap Stocks or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
Trading Center