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When you buy shares of a company's stock, you get a small piece of ownership of the company. If you buy the stock of a company that is traded on a public stock exchange, you usually get to decide when and if you sell that stock. In certain situations, however, a company can force shareholders to sell their holdings. In addition, if you buy stock in a company whose shares are not publicly traded, different rules apply, and the company can more easily compel you to sell your stock.
Callable Preferred Stock
Most people who buy stock in a public company are issued “common” stock. Many companies also issue "preferred" stock. These shares have a higher priority when it comes to paying dividends, but they usually do not carry voting rights. Because of the higher dividend, you’re likely to pay more for these shares. In some cases, preferred stock is callable, meaning the company has the right to buy the stock back at an agreed-upon price. If you own callable preferred stock and the company calls in the shares, you must sell your stock for the price being offered.
If one company buys another, it acquires all the stock of the acquisition target and retires those shares. This might involve one publicly traded company buying another or a hedge fund or other investment group buying a public company and "taking it private." Shareholders are given an opportunity to vote to approve the sale, and if a majority agree, then all shareholders, including those who oppose the sale, must either sell their stock to the acquiring company at the designated price or exchange it for a corresponding number of shares in the new company, if that is an option. The good news in this scenario, according to USA Today financial markets reporter Matt Kranz, is that the acquiring company often offers a premium price to entice shareholders to accept the deal.
Unlike publicly traded companies that must follow rules established by the Securities and Exchange Commission governing stock sales, private companies have a lot more flexibility when it comes to forcing stock sales. For example, a private company can require the heirs of a deceased stockholder to sell the shares back to the company. Private companies also may have agreements that require minority shareholders to sell to a majority shareholder who reaches a certain ownership threshold. In the case of employee-owned companies, employees are nearly always required to sell their shares back to the company if they leave.
One way a publicly traded company can get shareholders to sell their stock voluntarily is with a stock buyback. In a buyback, a company announces a plan to repurchase a certain number of its shares. It may do this by buying shares on the open market or by using a tender offer, in which it essentially seeks bids from investors on how much stock they are willing to sell and at what price. Buybacks reduce the number of outstanding shares, thus increasing a company's earnings-per-share ratio. Companies cannot force shareholders to sell their shares in a buyback, but they usually offer a premium price to make it attractive.