What Happens to Your Stock Shares When a Company Goes Private?
Written by
Cameron Diiorio
Edited by
Daria Uhlig
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Being a publicly owned company has its benefits, but it also has downsides. Because of strict government regulations and lack of freedom over how public companies operate, some choose to become privately held after having been owned publicly.
What does it mean for you when a company you’re investing in decides to go private?
When a Company Goes Private
When a public company goes private, it’s delisted from the stock market and is no longer owned by its shareholders. Control instead goes to an individual or a select group of private shareholders.
There are many reasons why companies choose to go private. One is privacy. With a privately held company, it is easier to go about daily operations without the scrutiny of the public. There also are fewer regulatory hoops to jump through, especially if the company won’t be selling any private shares.
Additionally, having fewer shareholders allows the owners to have more direct control over the business.
What That Means for Your Stock
When a public company goes private, its owners buy out the current shareholders’ stock. Shareholders who voted to approve the decision to go private will have agreed to a certain valuation, according to Darrow Wealth Management. That valuation and the number of outstanding shares determine how much you receive in the buyout.
It’s important to note that the cash you receive for your shares might be subject to capital gains tax, and the buyout might also throw your portfolio out of balance. You can lessen the potentially negative effects of a buyout by preparing well in advance for major changes to your portfolio.
One way to do that is to diversify. “Having different types of assets in an investment portfolio may be helpful in case something happens to or changes with one of them,” SoFi advises.
A company going private isn’t the only change that can have an adverse effect. Diversification also eases the pinch if a company’s stock value plummets or the company goes out of business.
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