Avoiding dividend treatment in the redemption of a dominant shareholder's stock

A noncorporate shareholder with a significant stake in a public corporation must deal with both the practical impact that a substantial redemption of his equity interest will have on the stock market as well as the tax consequences of the transaction. While the market generally favors corporate buy-backs. the sudden liquidity of a major shareholder may send the wrong signals. Dealing with potential pressures on the stock's price while running the gauntlet of Section 302(b) has led, in at least one situation. to an innovative approach whereby a redemption right can secure financing which will provide the desired liquidity.