Can Stocks Expire?

by Tim Plaehn, studioD

Stock shares do not have an expiration date. There are companies listed on the stock exchanges whose shares have traded for over 100 years. However, there are several circumstances in which the shares of a particular company stop having any value. This may be the case with an old stock certificate you found in a trunk, but it will not hurt to check it out.

Share Ownership

Stock shares are an ownership stake in a corporation. If something happens to the corporation, the value of the shares will reflect the change. One event which will terminate the value of stock shares is if the company is bought by another company. Shareholders must then exchange their shares for cash or shares in the new company, depending on the buyout terms. Corporations can also go out of business, usually through bankruptcy. In most cases the shares of a bankrupt company become worthless. Even if a company emerges from bankruptcy and shares of the company again trade on the exchanges, the company will issue new, post-bankruptcy shares and the old shares will have no value.

Corporate Actions

A company could make changes to its share structure, requiring current shares be exchanged for new shares. Common corporate actions are stock splits and reverse stock splits. If a stock split is declared, the investor sends in her shares and receives a larger number of shares in return, or the company may just send out more shares. In a reverse stock split, shares are exchanged for a smaller number of shares. For example, if a company declares a 1 for 10 reverse split, an investor with 100 shares currently will be left with 10 shares after the reverse split.

Paper Share Certificates

Shares held in a brokerage account are in book entry or electronic form. If a corporate action or stock buyout occurs, the broker will handle exchanging the existing shares for the new shares. In reality, these actions are just electronic bookkeeping changes. However, investors can also hold shares in certificate form. The investor who holds the shares is responsible for sending in shares that have been replaced due to a merger, buyout, stock split or reverse stock split. The share certificates of a bankrupt company make nice drawer liners.

Stock Options

Stock options are market traded securities separate from actual stock shares. The value of a stock option is based on the share price of a certain stock; if the option is exercised, shares of the stock will be delivered or received. However, stock options trade on a separate exchange and are bought and sold under a different set of rules. All stock options have an expiration date, and all options expiring during a month expire on the same day. Stock market news comments may discuss how options expiration is affecting the stock market.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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