Reviewed by Sep 28, 2020| Updated on
What is a Disposition?
Disposition refers to the act of selling an asset or security or otherwise disposing. Mostly, disposition would mean to sell out an open market stock investment, such as a stock exchange. Certain forms of schemes could include donations to charities or trusts.
Assets that can be disposed of can also be real estate (a building), land and other asset types. The other ways of disposal include transfers and assignments. The bottom line is that certain properties were given up (disposed of) by the investor.
Let's say an investor was a long-time holder of a particular company's shares, but the company may not be doing that well lately. If she wants to leave the investment, it will amount to the disposition of that investment. Most probably, she'd sell her shares in a stock exchange through a broker. Basically, she's decided to get rid of that investment or dispose of it.
Certain forms of disposition include transfers and assignments where someone legally assigns or transfers certain assets to his or her family or for charity or other kinds of organizations.
This is mostly done for tax and accounting purposes, where the transition or contract relieves the tax-disposer or other responsibility. The transfer or assignment may be permanent or based on temporary factors, such as its value as collateral for a loan.
Example of a Disposition
Continuing the above example, consider that the investor's alma mater approaches a wealthy alumnus calling for a donation to build a new dormitory. The alumnus agrees to make a substantial contribution after much persuasion.
To make that happen, the alumnus may have to dispose of some of his properties, be it securities, or property, or some other significant assets. He now has the funds at hand to donate to his old school despite his attitude.
For example, if an investor has a margin account and a broker sells shares within that margin account, then it is called an equity disposition.