simple, simple questions about stocks
Category: Business and Money > Finance
Asked by: gnossie-ga
List Price: $15.00
27 May 2005 13:03 PDT
Expires: 26 Jun 2005 13:03 PDT
Question ID: 526426
Hi there. Newcomer to the stocks game. Some fundamental questions. Seems hard to get some clear answers to them, though. Let's say I buy normal stock in a normal company, such as Microsoft. Let's say this is voting stock as well as stock that pays occasional dividends (I'm aware there are a lot of varieties of stock). Well, what happens to my stock, my share of the ownership of Microsoft if... 1. ...I die? (assuming I have not made provisions for the transfer of stock to somebody else in my will. I mean, does my stock just evaporate? Is it cancelled? Does it revert to the company's ownership?) 2. ...if the company goes out of business? If a company declares bankruptcy, are all the stock certificates suddenly "dead"? 3. (this is the one I really can't figure out)...if the company gets taken over by another company, renamed, sold, etc? What happens to my shares? For example, I have read a few times in economics textbooks that if you had bought a ton of stock right before the Great Depression and held on to it for like 30 years, you would STILL have come out way ahead. But this is kind of confusing to me, since a lot of those companies (in 1929) were no longer around (in, say, 1959), had died (e.g., WKO Pictures), or had been swallowed up by bigger companies. So how can economics textbooks make this claim? If Eastern Steel eats up Western Steel, do you automatically now have stock in Western Steel? Or do they have the option of just paying you cash to "get rid of you"? Really confused here.
Re: simple, simple questions about stocks
Answered By: richard-ga on 27 May 2005 14:20 PDT
Hello again and thank you for your question. 1. ... if I die? If you have a will, the probate court will appoint an Executor for your estate, who by law will have the power to deliver the share (or sell the share and deliver the proceeds of sale) to the person you named as beneficiary of your estate. If you don't have a will, the probate court will appoint an administrator who by law will have the power to deliver the share (or sell the share and deliver the proceeds of sale) to your heirs at law. Heirs at law are the people most closely related to you whom the statute names as being entitled to your stuff. Usually that's (i) all to your spouse if no children, (ii) all to your children if no spouse, (iii) some split between spouse and children if you have them, (iv) all to your parents if you have no spouse and no children, and so on. If you don't have a near enough relative it will "escheat" to the State. ://www.google.com/search?hl=en&lr=&safe=off&c2coff=1&rls=GGLD%2CGGLD%3A2004-01%2CGGLD%3Aen&q=%22heirs+at+law 2. ...if the company goes out of business? The company goes out of business (usually) if it owes more to its creditors than it has in assets, in which case either it will declare bankruptcy more-or-less voluntarily, or the creditors can force it into bankruptcy. The Bankruptcy court will appoint a Trustee, and the Trustee will allocate the assets among the creditors, first to secured creditors, then to general (unsecured) creditors. As a stockholder, you're neither, and you'll get nothing. The whole process is called liquidation, and when it's done the company charter will be cancelled, the company will cease to exist, and your stock certificate will be worthless paper. What Does Bankruptcy Mean To Investors? http://www.investopedia.com/articles/01/120501.asp 3. ... if the company gets taken over by another company, renamed, sold, etc? Your company is run by its directors and officers, and sometimes they get an offer they can't or don't want to refuse. In some cases you'll get a notice asking you whether you'd rather have a certain amount of cash for your shares, or a certain number of shares in the acquiring company. You'll have to accept one or the other. For example: ARM Announces Results of Stock Elections in the Acquisition of Artisan Components, Inc. http://www.arm.com/ir/financialnews/7725.html In other cases your company may simply liquidate. This is similar to the bankruptcy example, except here the assets (augmented by the purchase price) will exceed the company liabilities, and after all creditors are paid off your company will pay you and your fellow shareholders cash in cancellation of your shares. For example: Cargill completes Citrico acquisition http://www.foodingredientsfirst.com/newsmaker_article.asp?idNewsMaker=8274&fSite=AO545&next=1 Search terms used: fundamentals corporate bankruptcy stock acquisition surrender http://news.google.com/news?hl=en&lr=&c2coff=1&rls=GGLD%2CGGLD%3A2004-01%2CGGLD%3Aen&tab=wn&ie=UTF-8&q=acquisition+liquidation&btnG=Search+News Thanks again for letting us help. Google Answers Researcher Richard-ga
rated this answer:
Super-clear, solid answers: particularly the third. Thanks!
Re: simple, simple questions about stocks
From: financeeco-ga on 27 May 2005 13:50 PDT
1. The stock becomes part of your estate. The executor of your estate is in charge of disposing of all your assets according to your will. Most likely, the stock will go to one of your heirs. They pay estate tax (well, maybe) on the stock's value at your time of death. This "resets" the cost basis, so your heir doesn't have to pay a huge capital gains penalty when they eventually sell the stock. 2. The stocks of companies in the middle of bankrupcy proceedings have some value (usually a few pennies). This represents the speculative chance that the company won't completely cancel its stock when emerging from bankrupcty. If the company is truly and permanently dead, the stock is worthless. 3. When company A aquires company B, A must pay either cash or stock (its own stock) to company B. In the case of cash, B holders receive a check and their stock is "dead". In the case of a stock acquisition, B holders receive shares of A according to a set ratio (i.e. two shares of A for every share of B).
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