A:

Each share of stock sold in the market represents partial ownership in the issuing company. If an individual or entity buys enough of these shares, they can take what's called a controlling interest in the company. For example, if you own 1/10th of a percent of XYZ and thousands of other investors own their own small portions, none of you, on your own, can affect sweeping change within the company. But an individual who owns 51 percent would be considered to have a controlling interest and can, on his or her own, determine the way the company is run. A management buyout occurs when managers or other executives in a company purchase that controlling interest from other shareholders either to take control of the company or, in some cases, to take the company private.

In a stock buyback, the company itself repurchases issued shares of its own stock in order to reduce the number of outstanding shares. By reducing the number of outstanding shares, the company can create an increase in the market price of the stock. It can also protect itself from a hostile takeover, which occurs when an outside individual or entity buys a controlling interest against the company's wishes. Finally a stock buyback can increase the earnings per share as it's reducing the number of outstanding shares by which the net income is divided. Plans for gradual stock buybacks over a period of time are referred to as share repurchase plans. Occasionally, a stock buyback could occur because the company plans on going private meaning that it will no longer allow for public ownership of its shares.

RELATED FAQS
  1. Where can I find current data on stock buyback offers?

    Learn how to find information about stock buyback offers, understand the different methods of buybacks and why some criticize ... Read Answer >>
  2. Why would a company buyback its own shares?

    Learn about share buybacks and some of the many reasons a company may choose to repurchase its own stock, including ownership ... Read Answer >>
  3. In what situations does it benefit a company to buy back outstanding shares?

    Learn about the reasons a company may choose to buy back its outstanding shares, such as reducing the cost of capital and ... Read Answer >>
  4. What does a buyback signify about a given company's financial health?

    Learn about stock buybacks and what they can mean about a company's financial health depending on the motivation behind their ... Read Answer >>
  5. How does it affect a company's credit rating to buy back shares?

    Learn how buying back shares can negatively affect a company's credit rating if the company uses debt to finance a share ... Read Answer >>
  6. Why are stock buybacks so controversial?

    Understand the nature of stock buybacks and why many investors and analysts consider them to be controversial despite their ... Read Answer >>
Related Articles
  1. Products and Investments

    Weighing the Pros of Stock Buybacks vs. the Cons

    In recent years, the value of stock buybacks has come into question. Here we break down the trend and weigh the pros and cons of share repurchasing.
  2. Markets

    6 Bad Stock Buyback Scenarios

    Buying back shares can be a sensible way for companies to use extra cash. But in many cases, it's just a ploy to boost earnings.
  3. Investing

    4 Reasons Why Investors Like Buybacks

    From a financial perspective, buybacks benefit investors by improving shareholder value, increasing share prices, and creating tax beneficial opportunities
  4. Investing Basics

    Stock Buyback/Repurchase

    A stock buyback, or repurchase, occurs when a company buys its own shares off the market and therefore reduces the amount of stock outstanding.
  5. Stock Analysis

    Stock Buyback Report: Was it a Smart Strategy in 2015? (AAPL, MSFT)

    Find out the story behind company stock buyback programs and how some of the larger stock buybacks of 2015 have fared for shareholders.
  6. Professionals

    Are Stock Buybacks Always Good for Shareholders?

    Stock buyback programs aren't always done with the interests of shareholders in mind. It's important to try to understand the motivation behind such moves.
  7. Investing Basics

    How MasterCard Pulled Off a Buyback

    Stock buyback refers to publicly traded companies buying back their shares from shareholders. Why would they do that?
  8. Investing Basics

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  9. Investing Basics

    The Impact Of Share Repurchases

    Share repurchases can impact investors and companies in different ways.
  10. Economics

    How Buybacks Can Hurt Sharholders

    Buybacks can hurt shareholders in several ways.
RELATED TERMS
  1. Buyback

    The repurchase of outstanding shares (repurchase) by a company ...
  2. Leveraged Buyback

    A repurchase of significant amount of shares through the use ...
  3. Expanded Share Buyback

    An increase in a company’s existing share repurchase plan. An ...
  4. Buyback Ratio

    The ratio of the amount of cash paid by a company for buying ...
  5. Treasury Stock (Treasury Shares)

    The portion of shares that a company keeps in their own treasury. ...
  6. Share Repurchase

    A program by which a company buys back its own shares from the ...

You May Also Like

Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center