What happens to my position if I hold some stocks of a company that gets acquired?
The stockholders of company A vote to approve or disapprove the buy out. That is the only control you have on the price: Vote to approve or disapprove.  If the deal is approved then you get the money, or stock in B, or both, in accordance with the terms of the deal. It will arrive into your account automatically.
My understanding was that if a company buys back shares then those shares are 'extinguished' I.e. the rest of the shareholders now own a greater portion of the company. However, if there is only one share left, then the company could not buy it because doing so would extinguish it leaving the company without an owner. That result would run contrary to the requirements for an incorporated company in countries like NZ and Australia. It depends.  If you accept the offer, then your stock will cease existing.  If you reject the offer, then you will become a minority shareholder.  Depending on the circumstances, you could be in the case where it becomes illegal to trade your shares.  That can happen if the firm ceases to be a public company.  In that case, you would discount the cash flows of future dividends to determine worth because there would be no market for it. If the firm remained public and also was listed for trading, then you could sell your shares although the terms and conditions in the market would depend on how the controlling firm managed the original firm. "There are two scenarios to determine the relevant date, and then a couple of options to determine the relevant price. If the stocks were purchased in your name from the start - then the relevant date is the date of the purchase. If the stocks were willed to you (i.e.: you inherited them), then the relevant date is the date at which the person who willed them to you had died. You can check with the company if they have records of the original purchase. If it was in ""street name"" - they may not have such records, and then you need to figure out what broker it was to hold them. Once you  figured out the relevant date, contact the company's ""investor relationships"" contact and ask them for the adjusted stock price on that date (adjusted for splits/mergers/acquisitions/whatever). That would be the cost basis per share you would be using. Alternatively you can research historical prices on your favorite financial information site (Google/Yahoo/Bloomberg or the stock exchange where the company is listed). If you cannot figure the cost basis, or it costs too much - you can just write cost basis as $0, and claim the whole proceeds as gains. You'll pay capital gains tax on the whole amount, but that may end up being cheaper than conducting the investigation to reveal the actual numbers." "This stock is the same as any other, but you need to keep clear in your head that you and your company are now different entities.  You (the person) will pay tax on capital gains and losses when you sell any stock that you hold in your own name.  You'll also owe ""regular"" tax if you draw a salary, etc.  The fact that it may be ""your"" company does not change these things. The company will not recognize a gain by selling stock to raise capital since it's nominally exchanging things of equal value, say $100 in cash for $100 in stock.  In order to sell stock, however, you MIGHT need to register with the SEC depending on how you're going about finding your investors, so keep that in mind." Stock trading (as opposed to IPO) doesn't directly benefit the company. But it affects their ability to raise additional funds; if they're valued higher, they don't need to sell as many shares to raise a given amount of money.  And the stockholders are part owners of the company; their votes in annual corporate meetings and the like can add up to a substantial influence on the company's policies, so the company has an interest in keeping them (reasonably) happy. Dividends (distributing part of the company's profits to the stockholders) are one way of doing so. You're still investing in the company. The fact that you're buying someone else's share just means you're doing so indirectly, and they're dis-investing at the same time. It depends to some extent on how you interpret the situation, so I think this is the general idea. Say you purchase one share at $50, and soon after, the price moves up, say, to $55. You now have an unrealized profit of $5. Now, you can either sell and realize that profit, or hold on to the position, expecting a further price appreciation. In either case, you will consider the price change from this traded price, which is $55, and not the price you actually bought at. Hence, if the price fell to $52 in the next trade, you have a loss of $3 on your previous profit of $5. This (even though your net P&L is calculated from the initial purchase price of $50), allows you to think in terms of your positions at the latest known prices. This is similar to a Markov process, in the sense that it doesn't matter which route the stock price (and your position's P&L) took to get to the current point; your decision should be based on the current/latest price level. I've been through two instances where I worked for a public company that was merged (for stock) into another company.  In both cases the options I had were replaced with equivalent options in the merged company with the number of shares and strike price adjusted at the same rate as the actual stock was converted, and the vesting terms remained essentially the same.  In other words, the options before and after were in essence equivalent. Regardless of whether a stock is owned by a retail investor or an institutional investor, it is subject to the same rules.  For example, say that as part of the buyout, 1 share of Company B is equivalent to 0.75 shares of Company A and any fractional shares will be paid out in cash.  This rule will apply to both the retail investor who holds 500 shares of Company B, as well as the asset manager or hedge fund holding 5,000,000 shares of Company B. First: the question is irrelevant for purchases on exchange, mostly. Majority of sales on stock exchanges is between shareholders. If however you buy directly from the company (in a IPO, or direct share purchase program of some kind, like ESPP), then it does end up showing in the company account ledgers one way or another. It then become part of company's total assets, and the newly sold shares add to the equity. "I can see two possibilities. Either a deal is struck that someone (the company itself, or a large owner) buys out the remaining shares. This is the scenario @mbhunter is talking about, so I won't go too deeply into it, but it simply means that you get money in your bank account for the shares in question the same as if you were to sell them for that price (in turn possibly triggering tax effects, etc.). I imagine that this is by far the most common approach. The other possibility is that the stock is simply de-listed from a public stock exchange, and not re-listed elsewhere. In this case, you will still have the stock, and it will represent the same thing (a portion of the company), but you will lose out on most of the ""market"" part of ""stock market"". That is, the shares will still represent a monetary value, you will have the same right to a portion of the company's profits as you do now, etc., but you will not have the benefit of the market setting a price per share so current valuation will be harder. Should you wish to buy or sell stock, you will have to find someone yourself who is interested in striking a deal with you at a price point that you feel comfortable with." According to this article: With an all-stock merger, the number of shares covered by a call option is changed to adjust for the value of the buyout. The options on the bought-out company will change to options on the buyer stock at the same strike price, but for a different number of shares. Normally, one option is for 100 shares of the underlying stock. For example, company A buys company B, exchanging 1/2 share of A for each share of B. Options purchased on company B stock would change to options on company A, with 50 shares of stock delivered if the option is exercised.  This outcome strongly suggests that, in general, holders of options should cash out once the takeover is announced, before the transactions takes place.  Since the acquiring company will typically offer a significant premium, this will offer an opportunity for instant profits for call option holders while at the same time being a big negative for put option holders.  However, it is possible in some cases where the nominal price of the two companies favours the SML company (ie. the share prices of SML is lower than that of BIG), the holder of a call option may wish to hold onto their options. (And, possibly, conversely for put option holders.) I've seen many buyouts in my own portfolio, including the company I worked for.  There have been several different scenarios: The terms of the deal are subject to the deal -- frankly whatever makes sense to the buyer and that is accepted by the seller. So sometimes brokers charge reorganization fees.  check into those for your broker.  I've not seen one in a while, but my brokerage account is substantial, and often that's a perk they offer higher-value accounts. Also watch out for taxes.  The transaction where my employer was bought by another publicly traded company -- we got bit because the IRS treated it as a taxable transaction, and all our RSUs were effectively sold and then repurchased.  So we ended up with a big tax bill (capital gains) without any cash to offset the big tax bill.  I suspect its because my old employer was a US based company, whereas the new company is not. How can they reduce the number of shares I hold? They may have purchased them.  You don't say what stock it is, so we can only speculate.  Let's say that the stock is called PENNY.  So they may have taken your 1600 PENNY shares and renamed them to 1600 PENNYOLD shares.  Then they created a new $5 PENNY share and gave you .2357 shares of that in exchange for your 1600 PENNYOLD shares.  This suggests that your old shares were worth $1.1785 or less than a tenth of a cent each.   As an example, MYLAN did this in 2015 as part of their tax inversion (moved official headquarters from the US to Europe).  They did not change the number of shares at that time, but MYLAN is not a penny stock.   This is the kind of thing that might happen in a bankruptcy.   A reverse split (where they give you one share in exchange for more than one share) is also possible, although you received an odd amount for a reverse split.  Usually those produce rounder numbers.  A number like .2357 sounds more like a market price, as those can be bizarre. "Most companies are taken over. One can reasonably guess that company X will be taken over for a price P, at some future point in time. Then the company has a value today, that is less than price P, by a large enough margin so that the investor will likely ""make out"" when the company finally is taken over at some unknown point in time. The exception is a company like Microsoft or Apple that basically grow too large to be taken over. But then they eventually start paying dividends when they become ""mature."" Again, the trick, during the non-dividend paying period (e.g. ten or fifteen years ago) is to guess what dividends will be paid in some future time, and price the stock low enough today so that it will be worthwhile for the buyer." isn't it still a dilution of existing share holder stock value ? Whether this is dilution or benefit, only time will tell. The Existing value of Facebook is P, the anticipated value after Watsapp is P+Q ... it may go up or go down depending on whether it turns out to be the right decision. Plus if Facebook hadn't bought Watsapp and someone else may have bought and Facebook itself would have got diluted, just like Google Shadowed Microsoft and Facebook shadowed Google ... There are regulations in place to ensure that there is no diversion of funds and shady deals where only the management profits and others are at loss. Edit to littleadv's comments: If a company A is owned by 10 people for $ 10 with total value $100, each has 10% of the share in the said company. Now if a Company B is acquired again 10 ea with total value 100. In percentage terms everyone now owns 5% of the new combined company C. He still owns $10 worth. Just after this acquisition or some time later ...