If a company you own stock in is bought out, your shares are automatically converted into whatever the merger agreement specifies, typically cash, shares of the acquiring company, or some combination of the two. The price or exchange ratio is set in the agreement filed with the SEC, and if you hold your shares through a normal brokerage account, the conversion happens on your behalf without any paperwork on your end. What changes is the form of what you own, the tax bill you may owe, and the timeline before the money or new shares actually land in your account.
What You Get Paid
The payment shareholders receive in a buyout is called the consideration, and it can take several forms.
All-Cash Deals
In an all-cash deal, you receive a fixed dollar amount for every share. That price is almost always higher than where the stock was trading before the deal was announced. Premiums of 20% to 40% over the pre-announcement market price are common, though the exact figure varies.1SEC. Definitive Merger Proxy Statement When the transaction closes, your shares disappear from your account and cash appears in their place.
All-Stock Deals
In an all-stock deal, you receive shares of the acquiring company. The merger agreement sets a fixed exchange ratio: if the ratio is 0.75, every share you own converts into 0.75 shares of the buyer. Because the buyer’s stock price moves between announcement and closing, the dollar value of what you end up with is not locked in until the deal actually finalizes.
Mixed Cash and Stock
Many deals combine the two. Some let you elect your preferred mix, but the total cash and stock pools are usually capped. If too many shareholders pick the same option, the allocations get adjusted proportionally to keep the overall deal within its limits. You might ask for all cash and end up with 60% cash and 40% stock if the cash pool is oversubscribed.
Contingent Value Rights
Some deals include contingent value rights (CVRs), which entitle you to extra payments later if specific milestones are hit. These show up most often in pharmaceutical acquisitions where a drug is still in clinical trials. If the drug gets regulatory approval or hits a revenue target, you get a supplemental payout. If the milestone is missed, the CVR expires worthless. CVRs sometimes trade on an exchange after closing, so you can sell yours instead of waiting.
Fractional Shares
When a stock-for-stock exchange ratio produces a fraction of a share, the company does not issue partial shares. You receive a small cash payment for the fractional portion, and the IRS treats that cash as a sale of the fractional share for tax purposes.2Internal Revenue Service. Private Letter Ruling PLR-100271-25
What Happens in Your Brokerage Account
If you hold shares in a standard brokerage account, you almost certainly do not need to do anything. Your broker handles the conversion. On the closing date, an exchange agent (usually a major bank or trust company) holds the cash and new stock in trust for shareholders and distributes it according to the merger agreement.3SEC. S-4 Registration Statement
The old ticker symbol disappears and the merger consideration appears in your account. Timing depends on the brokerage. Some credit accounts as soon as legal ownership transfers; others wait until the Depository Trust Company has fully allocated the consideration to their participant account. Expect a couple of business days to about two weeks after the official closing date.
On the closing day itself, the listing exchange halts trading in the target’s stock, and that halt is binding across every U.S. venue that trades the security.4FINRA. Trading Halts, Delays and Suspensions The shares are then delisted and the old ticker ceases to exist.
The Wait Between Announcement and Closing
Most mergers take several months to close. The deal needs regulatory approvals and, in many cases, a shareholder vote. Larger acquisitions must clear a premerger antitrust review by the Federal Trade Commission and Department of Justice under the Hart-Scott-Rodino Act, and regulators can extend the initial waiting period by requesting more information.5Federal Trade Commission. New HSR Thresholds and Filing Fees for 2026
During this limbo, the target’s stock usually trades slightly below the announced offer price. That gap, called the deal spread, reflects the market’s view of the risk that the deal might collapse. If you are impatient or worried about the deal breaking, you can sell on the open market at the discounted price. If you hold on and the deal closes, you receive the full consideration.
Dividends during the pending period are governed by the merger agreement. You are entitled to any dividend whose record date falls before the deal closes, as long as you own shares on that record date.6Investor.gov. Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends Many agreements bar the target from paying special dividends without the buyer’s consent, so check the actual document if this matters to you.
Paper Stock Certificates
If you hold physical certificates rather than shares in a brokerage account, you do have to act. After closing, the exchange agent sends registered shareholders a Letter of Transmittal. You fill it out, include your original certificates (or an affidavit of loss if you cannot find them), and in some cases obtain a signature guarantee from a bank or brokerage before mailing everything back.7SEC. Form of Letter of Transmittal The exchange agent then sends what you are owed.
Do not sit on this. Unclaimed money in the exchange fund is typically returned from the exchange agent to the surviving company after about one year, and you then have to chase the buyer directly.3SEC. S-4 Registration Statement Wait longer and the funds are eventually turned over to a state as abandoned property under escheatment laws. Recovering money from a state unclaimed property office is slower and more frustrating.
What You’ll Owe the IRS
The tax bill depends almost entirely on the form of the consideration.
Cash Buyouts Are Fully Taxable
An all-cash buyout is a taxable event. You recognize a capital gain or loss equal to the cash you receive minus your cost basis (what you originally paid). If you held the stock more than a year, the gain is taxed at long-term capital gains rates. For 2026, those rates are 0% for taxable income up to $49,450 for single filers ($98,900 for married joint filers), 15% up to $545,500 ($613,700 jointly), and 20% above.8Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates High earners may also owe the 3.8% net investment income tax on top. If you held the stock a year or less, the gain is taxed at your ordinary income rate.
Stock-for-Stock Can Be Tax-Deferred
A stock-for-stock deal that qualifies as a tax-free reorganization under the Internal Revenue Code is not taxed at the time of the exchange.9Office of the Law Revision Counsel. 26 USC 354 – Exchanges of Stock and Securities in Certain Reorganizations Your original cost basis carries over to the new shares, and you owe nothing until you eventually sell them. Qualifying transactions have to meet specific structural requirements, such as a statutory merger where stock is exchanged for stock of the surviving company.10Office of the Law Revision Counsel. 26 USC 368 – Definitions Relating to Corporate Reorganizations Your holding period also carries over, which matters when you eventually sell.
Mixed Deals: Cash Portion Is Taxable
When you receive a mix of cash and stock in a qualifying reorganization, the stock portion stays tax-deferred, but the cash portion (the tax code calls it “boot”) triggers a taxable gain. Your gain on the boot is capped at the total gain you would have recognized if the whole transaction were taxable, so you cannot be taxed on more than your actual economic gain.11Office of the Law Revision Counsel. 26 USC 356 – Receipt of Additional Consideration
Watch the Wash Sale Rule If You Have a Loss
If a cash buyout results in a loss and you purchase shares of the acquiring company within 30 days before or after the sale, you could trigger the wash sale rule. The IRS may treat the predecessor and successor company’s stock as substantially identical, meaning your loss can be disallowed.12Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss is added to the basis of the replacement shares rather than lost forever, but you cannot deduct it this year. If you want the loss and are eyeing the buyer’s stock, wait at least 31 days.
Tracking Your New Cost Basis
Your broker will report the proceeds on IRS Form 1099-B.13Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions In a stock-for-stock or mixed deal, the acquiring company is also required to file IRS Form 8937, which describes how the transaction affects the basis of your shares. Companies can post the completed form on their website and must keep it accessible for 10 years.14Internal Revenue Service. Instructions for Form 8937 – Report of Organizational Actions Affecting Basis of Securities Check both your broker’s records and the company’s investor relations page, and do not assume the broker got the basis right without verifying.
Shares Inside a 401(k) or IRA
If the acquired company’s stock sits inside a retirement account, the conversion still happens but the tax treatment is different. Because these accounts are tax-deferred, the merger itself is not a taxable event. Whether you receive cash or new stock inside the account, you owe nothing until you take a distribution. The plan administrator or IRA custodian handles the mechanics.
The wrinkle is if the acquisition causes your employer’s retirement plan to terminate. If the plan shuts down and you receive a distribution, that money is included in your gross income unless you roll it into another qualified plan or an IRA. If you are under 59½, you may also face a 10% early withdrawal penalty.15Internal Revenue Service. Retirement Topics – Employer Merges With Another Company The buyer sometimes adopts the existing plan, which avoids the problem. If you get a plan termination notice, rolling the balance into an IRA is usually the safest move.
Employee Stock Options and RSUs
If you hold company stock through employer equity awards rather than an ordinary brokerage account, the answer depends on your specific award agreement and the merger agreement. Details vary from deal to deal, and reading your plan documents matters more than any general rule.
Vested options that are in the money (exercise price below the deal price) are typically cashed out for the spread between the two, and your options are cancelled. Underwater options, where the exercise price exceeds the deal price, are usually cancelled for nothing.
Unvested options and restricted stock units generally follow one of three paths. Vesting may be accelerated so your awards immediately convert into the deal consideration. The buyer may assume your awards and let them continue vesting on the original schedule, converting into buyer stock as they vest. Or your awards may be substituted with new awards in the buyer’s equity plan under a comparable schedule. If none of that happens, unvested awards can simply be cancelled.
Your company’s equity plan is the governing document, and a company generally cannot change its terms at the time of a sale in a way that leaves the holder worse off without the holder’s consent. When a deal is announced, your employer will usually send a communication explaining how each category of award will be treated. Read it against your plan documents.
Your Rights as a Shareholder
You are not powerless in the process, though how much any of these rights help depends on the size of your position.
Voting on the Deal
In a statutory merger, the target’s board negotiates terms with the buyer and puts the deal to a shareholder vote. You receive a proxy statement describing the transaction, the board’s recommendation, any financial advisor’s fairness opinion, and the specific consideration you will receive.16U.S. Securities and Exchange Commission. Annual Meetings and Proxy Requirements Most deals require approval from a majority of all outstanding shares entitled to vote, which is a higher bar than it sounds because every non-vote effectively counts as a no. If the deal passes, it binds every shareholder, including those who voted against.
The alternative structure is a tender offer, where the buyer goes directly to shareholders with an offer to purchase shares at a stated price. Federal rules require the offer to stay open for at least 20 business days.17eCFR. 17 CFR Part 240 Subpart A – Regulation 14D If enough shareholders tender to hit the minimum acceptance condition, the buyer takes control and typically follows up with a short-form merger to sweep up remaining shares without a separate vote, provided it holds at least 90% of the outstanding stock.
Appraisal Rights
If you think the deal undervalues your shares, most states let you petition a court to determine the fair value of your stock independently. This is not a casual protest. You have to follow strict procedural requirements and statutory deadlines, and missing a single step can permanently forfeit the right. The court’s determination could come in above or below the deal price, you bear your own legal costs, and cases typically take years to resolve while your money is tied up. In practice, this remedy is realistic mainly for institutional investors or shareholders with large concentrated positions.