What happens if a company I have stock in is bought out?
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. A buy out is agreed by shareholders. Plus most countries have regulation protecting minority interest. Depending on the terms of buy out, you may get equivalent shares of buyer company or cash or both.
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. 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.) "Seems like no one in this thread has heard of ""treasury stocks"", which indeed allow a company to own and sell its own stock. Think about it. When there is a stock buy-back funded by excess profits, where does that stock go?" "Hmm... Well there are several ways to do that: Go to any bank (or at the very least major ones). They can assist you with buying and/or selling stocks/shares of any company on the financial market. They keep your shares safe at the bank and take care of them. The downside is that they will calculate fees for every single thing they do with your money or shares or whatever. Go to any Financial broker/trader that deals with the stock market. Open an account and tell them to buy shares from company ""X"" and keep them. Meaning they won't trade with them if this is what you want. Do the same as point 2, but on your own. Find a suitable broker with decent transaction fees, open an account, find the company's stock code and purchase the stocks via the platform the broker uses." "Recently, I asked about what the company valuation is and how many   shares does my 4% represent.CFO told me that there is no point to talk   about ""shares"" or ""stock"" since the company is not public. Is it   right? No, it is wrong. Shares and stocks exist regardless of how they can be traded. Once a company is formed, there are stocks that belong to the owners in the proportion of the ownership. They may not exist physically, but they do exist on paper. As an owner of 5% of the company, you own 5% of the company stocks. I asked if my investor portion equity will be subjected under a   vesting schedule, CFO said yes. That doesn't make sense to me, because   I bought those 4%? Aren't those supposed to be fully vested? I agree   to my employee equity to be vested. Doesn't make sense to me either, since your money is already in their pocket. But I'm not sure if its illegal. If that's what is written in the signed contract - then may be its possible to have that situation. But it doesn't make much sense, because these shares are granted to you in return to your money, not some potential future work (as the 1% employee's portion). You already gave the money, so why wouldn't they be vested? Best to read the contract upon which you gave them your money, I really hope you have at least that and not just gave them a check...." "No.  If the share price drops to $0, it's likely that the company is in bankruptcy. Usually, debt holders (especially holders of senior debt) are paid first, and you're entitled to whatever the bankruptcy proceedings decide to give holders of equity after the debt holders are paid off. More often than not, equity holders probably won't get much. To give an example, corporate bankruptcy usually involves one of two options: liquidation or reorganization. In the US, these are called Chapter 7 and Chapter 11 bankruptcy, respectively. Canada and the United Kingdom also have similar procedures for corporations, although in the UK, reorganization is often referred to as administration. Many countries have similar procedures in place. I'll use the US as an example because it's what I'm most familiar with. In Chapter 7 bankruptcy, the company is liquidated to pay its debts. Investopedia's article about bankruptcy states: During Chapter 7 bankruptcy, investors are considered especially low on the ladder. Usually, the stock of a company undergoing Chapter 7 proceedings is usually worthless, and investors lose the money they invested. If you hold a bond, you might receive a fraction of its face value. What you receive depends on the amount of assets available for distribution and where your investment ranks on the priority list on the first page. In Chapter 11 bankruptcy, the company is turned over to a trustee that guides it through a reorganization. The Investopedia article quotes the SEC to describe what happens to stockholders when this happens: ""During Chapter 11 bankruptcy, bondholders stop receiving interest and principal payments, and stockholders stop receiving dividends. If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company. The new shares may be fewer in number and worth less. The reorganization plan spells out your rights as an investor and what you can expect to receive, if anything, from the company."" The exact details will depend on the reorganization plan that's worked out, local laws, court agreements, etc.. For example, in the case of General Motor's bankruptcy, stockholders in the company before reorganization were left with worthless shares and were not granted shares in the new company." "As a TL;DR version of JAGAnalyst's excellent answer: the buying company doesn't need every last share; all they need is to get 51% of the voting bloc to agree to the merger, and to vote that way at a shareholder meeting. Or, if they can get a supermajority (90% in the US), they don't even need a vote. Usually, a buying company's first option is a ""friendly merger""; they approach the board of directors (or the direct owners of a private company) and make a ""tender offer"" to buy the company by purchasing their controlling interest. The board, if they find the offer attractive enough, will agree, and usually their support (or the outright sale of shares) will get the company the 51% they need. Failing the first option, the buying company's next strategy is to make the same tender offer on the open market. This must be a public declaration and there must be time for the market to absorb the news before the company can begin purchasing shares on the open market. The goal is to acquire 51% of the total shares in existence. Not 51% of market cap; that's the number (or value) of shares offered for public trading. You could buy 100% of Facebook's market cap and not be anywhere close to a majority holding (Zuckerberg himself owns 51% of the company, and other VCs still have closely-held shares not available for public trading). That means that a company that doesn't have 51% of its shares on the open market is pretty much un-buyable without getting at least some of those private shareholders to cash out. But, that's actually pretty rare; some of your larger multinationals may have as little as 10% of their equity in the hands of the upper management who would be trying to resist such a takeover. At this point, the company being bought is probably treating this as a ""hostile takeover"". They have options, such as: However, for companies that are at risk of a takeover, unless management still controls enough of the company that an overruling public stockholder decision would have to be unanimous, the shareholder voting body will often reject efforts to activate these measures, because the takeover is often viewed as a good thing for them; if the company's vulnerable, that's usually because it has under-performing profits (or losses), which depresses its stock prices, and the buying company will typically make a tender offer well above the current stock value. Should the buying company succeed in approving the merger, any ""holdouts"" who did not want the merger to occur and did not sell their stock are ""squeezed out""; their shares are forcibly purchased at the tender price, or exchanged for equivalent stock in the buying company (nobody deals in paper certificates anymore, and as of the dissolution of the purchased company's AOI such certs would be worthless), and they either move forward as shareholders in the new company or take their cash and go home." Good questions. I can only add that it may be valuable if the company is bought, they may buy the options. Happened to me in previous company. As littleadv says it depends on the local laws.   Normally one shouldn't be too worried. Typically the stocks given to the employees are a very small portion of the overall stocks ... the owners would not try to jeopardize the deal just so that they make an incrementally small amount of money ... they would rather play safe than get into such a practice. "You were probably not given stock, but stock options.  Those options have a strike price and you can do some more research on them if needed.  Lets assume that you were given 5K shares at a strike of 20, and they vest 20% per year.  Assume the same thing in your second year and you are going to leave in year three. You would have 2K shares from your year 1 grant, and 1K shares from your year 2 grant, so 2K total. If you leave no more shares would be vested. If you leave you have one of two options: To complicate matters subsequent grants may have different strike prices, so perhaps year two grant is at $22 per share.  However, in pre-public companies that is not likely the case. For a bit of history, I worked at a pre-ipo company and we were all going to get rich.  I was given generous grants, but decided to leave.  I really wanted to buy my options but simply didn't have the money.  Shortly after I left the company folded, so the money would have been thrown away anyway.  When a company is private the motivate their employees with tales of riches, but they are not required to disclose financial data.  This company did a very good job of convincing employees that all was fine, when it wasn't. Also I received options in a publicly traded company.  Myself and other employees received options that were ""underwater"" or worth far less than the strike price.  You could let them expire so one did not owe money, but they were worthless. Hopefully that answers your question." There are a number of ways this can result. In a broad ETF, such as SPY, the S&P 500 spider, the S&P index will have 500 stocks no matter what, so a buyout would simply result in a re-shuffling of the index makeup. No buyout will happen so quickly that there's no time to choose the next stock to join the index. In your case, if the fund manager (per the terms of the prospectus) wishes to simply reallocate the index to remove the taken-over stock that's probably how he handle it.  Unless of course, the prospectus dictates otherwise. In which case, a cash dividend is a possible alternative. "There is a legal document called a ""Stock Purchase Agreement"" and it depends on who is the other party to the buyer in the Agreement. In almost all startups the sale goes through the company, so the company keeps the money. In your example, the company would be worth $10,000 ""Post-Money"" because the $1k got 10% of the Company." Firstly it is completely legal for a company to buy its own shares, I don't believe it would be legal to do so secretly. It would also be very difficult to do that secretly.   So hypothetically we have a company Johnbbob Inc. It doesn't have any assets other than $100 in a bank account and there are 100 shares each owned by a different person. Each share would be worth $1. So the company decides to buy one share. Now there is $99 in the account and 99 shares, each share is still worth $1. So the company continues to buy shares until there is only one share left and $1 in the account. If the company buys that last share it will no longer have any assets and will cease to exist, effectively dissolving the company.  TL:DR it is called dissolving the company or dissolution and it happens fairly often with limited liability corporations. You can look at the company separately from the ownership. The company needs money that it doesn't have, therefore it needs to borrow money from somewhere or go bankrupt.  And if they can't get money from their bank, then they can of course ask people related to the company, like the two shareholders, for a loan. It's a loan, like every other loan, that needs to be repaid. How big the loan is doesn't depend on the ownership, but on how much money each one is willing and capable of giving. The loan doesn't give them any rights in the company, except the right to get their money back with interest in the future.  Alternatively, such a company might have 200 shares, and might have given 75 to one owner and 25 to the other owner, keeping 100 shares back. In that case, the shareholders can decide to sell some of these 100 shares. I might buy 10 shares for $1,000 each, so the company has now $10,000 cash, and I have some ownership of the company (about 9.09%, and the 75% and 25% shares have gone down, because now they own 75 out of 110 or 25 out of 110 shares). I won't get the $10,000 back, ever; it's not a loan but the purchase of part of the company. Absolutely. In fact, all stock purchases of more than 5% of a company's stock must be reported to the SEC, so assuming A and B are publicly traded companies in the US, the purchase would likely be a matter of public record.  There are probably special cases where this could cause problems, however; any case where A's purchase of B's stock (or vice versa) runs afoul of regulation would be one such case. For example, if company A wants to own a controlling interest in company B and appoint members of its board of directors and both companies were in the same heavily-concentrated market, regulators may frown on the potential for decreased competition. Such regulations may apply to any purchase of a controlling interest in a company, though.