TrueLark Founders and Early Investors Could Seize QSBS Benefits
TrueLark, an AI powered virtual receptionist platform founded in 2017, announced its acquisition by Weave Communications (NYSE: WEAV) for $35 million. The deal includes $25 million in cash and $10 million in equity, plus potential performance based stock grants for key personnel over two years. For founders and early shareholders who have held QSBS eligible shares since at least 2020, this liquidity event may open the door to a once in a lifetime tax exemption, but only if the deal structure was handled correctly.
“Weave Communications to Acquire TrueLark, Accelerating AI-Powered Front Office Automation”, as announced on TrueLark’s website.
Under Section 1202 of the Internal Revenue Code, QSBS can allow for 100% exclusion of up to $10 million (or 10 times basis) in capital gains. With a 2017 founding date, many TrueLark insiders may have met the five year holding period requirement, making them strong candidates for the exclusion. But when part of the consideration comes in the form of acquiring company stock, as it does here, things get more nuanced.
Stock for stock exchanges can preserve QSBS status only if they meet strict IRS requirements. Specifically, Section 1202(h)(4)(A) allows for continued QSBS treatment if the acquiring company’s stock is received in a tax free reorganization and the acquired company’s stock was QSBS at the time of exchange. This means the Weave stock received by eligible TrueLark shareholders could carry over QSBS status, and continue the QSBS holding timeline.
This puts founders and early shareholders in a critical decision window: hold and potentially maintain QSBS protection, or sell and explore a Section 1045 rollover to bridge the holding period gap. The latter allows proceeds, even from stock sales, to be reinvested into another QSBS qualified business within 60 days, continuing the clock while deferring taxes on excess gains. (This is most relevant for those who have held the TrueLark stock for less than 5 years).
TrueLark’s exit is a textbook case for why founders must closely evaluate how equity based exits affect their tax treatment. A portion of the $10 million in Weave stock may still provide a path to future QSBS eligibility, but only with careful planning and adherence to rollover timelines. Those who fail to act in time or misunderstand the tax implications risk losing access to one of the most powerful capital gains exemptions in the U.S. tax code.
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You could benefit from a QSBS rollover if:
You recently sold QSBS before the 5 year minimum hold period
You recently sold QSBS that you held for 5 years, but your gain exceeds $10M
You’re considering an exit in the next 1-4 years and want to think ahead about tax planning
Are an angel investor seeking flexible QSBS opportunities to help defer gains
The Vint Retail Partnership Program can be a solution for QSBS gain holders in need of a flexible, low-risk, and relatively liquid QSBS opportunity. Get in touch with our team today to learn how to partner with us and potentially save millions in gains tax from a stock sale.
Here are some of the questions we typically ask when having a first meeting with potential partners:
Did you recently sell or are you holding Qualified Small Business Stock?
When did you sell your stock?
Was this your first liquidity event?
Are you a founder, early employee, outside investor/angel, etc?
Are you certain that your stock met the Active Trade/Business and other requirements under Section 1202? (Outside of holding period requirements)
What is your intended rollover amount?
How long did you hold your initial stock?
(Read more about QSBS planning and see some example situations)
