Ownership Stake |
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Dear Dave
I’m a recent new shareholder at my firm and have a question about
what happens to stock when a shareholder leaves the company. Specifically,
how does the stock that is bought back affect my ownership stake in the
firm?
EF W VA
Dear EF
When the company repurchases the shares of a departing shareholder, those
particular shares are taken out of circulation and are thereafter referred
to as treasury stock. The total number of shares outstanding after the
transaction is now reduced by the number of shares bought back, so your
shares, as a percentage of ownership is now larger as there are fewer
shares outstanding. If the company at some future date resells all or
a portion of the treasury shares, the total number of shares outstanding
is now increased and your percent of ownership is proportionately reduced.
A not untypical scenario would be that
instead of a departing shareholder selling his or her stock directly back
to the company, creating treasury stock, the shareholder may instead sell
their shares directly to other shareholders. In this example, the number
of shares outstanding and your percent of ownership are each unchanged
and remain the same. |
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