If the company whose stock you own gets bought out, your shares are converted into whatever the merger agreement specifies, which is typically cash, shares of the acquiring company, or a combination of both. For most people holding shares in an ordinary brokerage account, the swap happens automatically on the closing date and you don’t need to lift a finger. What you actually end up with, when you get it, and what you owe in taxes all depend on how the deal is structured.
What You Get for Your Shares
The payment shareholders receive in a buyout is called the consideration. It shows up in one of a few forms.
Cash
In an all-cash deal, you receive a fixed dollar amount per 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 by deal.1SEC. Definitive Merger Proxy Statement When the transaction closes, your shares disappear from your account and cash takes their place.
Stock
In an all-stock deal, you receive shares of the acquiring company. The merger agreement sets a fixed exchange ratio. A ratio of 0.75 means every share you hold converts into 0.75 shares of the buyer. Because the acquirer’s stock price moves between announcement and closing, the dollar value you ultimately walk away with is not locked in until the deal finalizes.
A Mix of Both
Many deals offer a combination. Some let you elect your preferred mix, but the total cash and stock pools are usually capped. If too many shareholders choose the same option, the allocations get prorated. You might request all cash and end up with 60% cash and 40% stock if the cash pool is oversubscribed.
Contingent Value Rights
Some acquisitions include contingent value rights, or CVRs, which entitle you to additional payments later if certain milestones are met. They show up most often in pharmaceutical deals where a drug is still in clinical trials. If the drug hits regulatory approval or 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 them 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 get a small cash payment for the fractional piece. The IRS treats that payment as a sale, so any gain on it is a taxable capital gain.2Internal Revenue Service. Private Letter Ruling PLR-100271-25
How the Conversion Reaches Your Account
If your shares sit in a standard brokerage account, you probably don’t 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 stock in trust for shareholders and distributes it according to the merger agreement.3SEC. S-4 Registration Statement
Your old ticker disappears and the consideration shows up. Timing varies by firm. Some brokers 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 anywhere from a couple of business days to about two weeks after the official closing date.
On the day the merger closes, the listing exchange halts trading in the target’s stock. The exchange notifies all U.S. markets, and the halt is binding across every venue that trades the security.4FINRA. Trading Halts, Delays and Suspensions Once trading stops, the shares are delisted and the old ticker ceases to exist.
If You Hold Paper Certificates
If you actually hold paper stock certificates rather than book-entry shares in a brokerage account, you have to deal with the exchange agent yourself. After closing, the agent sends registered shareholders a Letter of Transmittal. You complete the form, enclose your original certificates (or an affidavit of loss if you have misplaced them), and in some cases get a signature guarantee from a bank or brokerage before mailing it back.5SEC. Form of Letter of Transmittal The agent then sends you the cash or stock you’re owed.
Don’t sit on it. Any portion of the exchange fund that stays unclaimed is typically returned from the exchange agent to the surviving company after about one year. You can still collect after that, but you have to go to the buyer directly.3SEC. S-4 Registration Statement Wait long enough and the funds are turned over to a state as abandoned property under escheatment laws, which is a slower process to unwind.
Between Announcement and Closing
Most mergers take several months to close, sometimes longer. The delay exists because the deal needs regulatory approvals and, in many cases, a shareholder vote.
During this waiting period, the target’s stock usually trades slightly below the announced offer price. That gap is called the deal spread, and it reflects the market’s assessment of the risk the deal falls through. If you don’t want to wait or you’re worried about the deal collapsing, you can sell on the open market at the discounted price. Shareholders who hold on receive the full consideration if the deal closes.
If the target normally pays dividends, the merger agreement usually spells out whether they continue during the pending period. 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 deals prohibit the target from paying special dividends without the buyer’s consent, so check the agreement itself for specifics.
What You’ll Owe in Taxes
The tax bill depends entirely on the type of consideration you receive. A cash deal and a stock deal produce very different outcomes.
Cash Deals
An all-cash buyout is a fully 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 qualifies for 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 couples filing jointly), 15% up to $545,500 ($613,700 jointly), and 20% above.7Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates High earners may also owe the 3.8% net investment income tax. Shares held a year or less are taxed at ordinary income rates.
Stock Deals
A stock-for-stock deal that qualifies as a tax-free reorganization under the Internal Revenue Code isn’t taxed at the time of the exchange. Your original cost basis carries over to the new shares, and you owe nothing until you eventually sell them.8Office of the Law Revision Counsel. 26 USC 354 – Exchanges of Stock and Securities in Certain Reorganizations The deal has to meet specific requirements about the type of reorganization, such as a statutory merger where stock is exchanged for stock of the surviving company.9Office of the Law Revision Counsel. 26 USC 368 – Definitions Relating to Corporate Reorganizations Your holding period for the old stock carries over too, which matters when you sell and need to know whether the gain is long-term or short-term.
Mixed Deals and Boot
When you receive a mix of cash and stock in a qualifying reorganization, the stock portion is tax-deferred but the cash portion (called “boot”) triggers a taxable gain. That gain 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 even with a large cash component.10Office of the Law Revision Counsel. 26 USC 356 – Receipt of Additional Consideration
Watch the Wash Sale Rule
If you realize a loss in a cash buyout and then buy shares of the acquiring company within 30 days before or after, you may trigger the wash sale rule. The IRS treats stock of a predecessor and successor corporation in a reorganization as potentially substantially identical, meaning the loss could be disallowed.11Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss gets added to the basis of the replacement shares, so it isn’t permanently lost, but you can’t deduct it in the current year. If a buyout results in a loss and you’re considering buying the acquirer’s stock, wait at least 31 days.
Tracking Your Cost Basis
Your broker will report merger proceeds on IRS Form 1099-B.12Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions In a stock-for-stock or mixed deal, the acquirer is also required to file IRS Form 8937 describing how the transaction affects the basis of your shares. Companies can satisfy this by posting the completed form on their website, and must keep it accessible for 10 years.13Internal 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 verify the basis rather than assuming the broker got it right.
Shares Held in a 401(k) or IRA
If the acquired company’s stock sits inside a retirement account, the conversion still happens, but there’s no tax event. Retirement accounts are tax-deferred, so whether you receive cash or acquirer stock inside the account, you owe nothing until you take a distribution. The plan administrator or IRA custodian handles the mechanical conversion the same way a regular brokerage would.
The complication 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 gross income unless you roll it into another qualified plan or an IRA. Under age 59½, you may also face a 10% early withdrawal penalty on top of the income tax.14Internal Revenue Service. Retirement Topics – Employer Merges With Another Company Sometimes the acquiring company adopts the existing plan and continues it, which avoids the issue. 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 equity through work rather than in a brokerage account, treatment varies significantly deal by deal. Your award agreement and the equity plan matter more than general rules.
Vested options that are in the money (exercise price below the deal price) are typically cashed out for the spread, and your options are cancelled. Underwater options, where the exercise price exceeds the deal price, are usually cancelled for nothing.
Unvested options and RSUs follow one of three paths. The buyer may accelerate vesting and convert your unvested equity into the deal consideration immediately. The buyer may assume your awards and let them continue vesting on their original schedule, converting into the buyer’s stock upon vesting. Or your old awards may be substituted with new awards in the buyer’s stock under the buyer’s equity plan, again continuing on a vesting schedule. If none of those happens, unvested awards may simply be cancelled.
Your company’s equity plan is the governing document. Courts have held that a company generally cannot change equity plan terms at the time of a sale without optionholder consent if the change would make the holder worse off. 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 Vote and Your Right to Push Back
You’re not without options in this process.
Voting
In a statutory merger, the target’s board negotiates terms with the buyer and puts the deal to a shareholder vote. The company sends a proxy statement describing the transaction, the board’s recommendation, any fairness opinion, and the exact consideration you’ll receive.15U.S. Securities and Exchange Commission. Annual Meetings and Proxy Requirements Most deals need approval from a majority of all outstanding shares entitled to vote. That’s a higher bar than it sounds, because every share that doesn’t vote effectively counts as a no. If the deal passes, it binds every shareholder, including those who voted against it.
In a tender offer, there’s no proxy vote. The buyer goes directly to shareholders with an offer to purchase at a stated price. Federal rules require the offer to stay open for at least 20 business days.16eCFR. 17 CFR Part 240 Subpart A – Regulation 14D The buyer usually sets a minimum acceptance threshold, and if enough shares are tendered to cross it, the buyer takes control. A short-form merger then sweeps up any remaining shares without a separate vote, provided the buyer holds at least 90% of the stock.
Appraisal Rights
If you think the deal undervalues your shares, most states offer a legal remedy called appraisal rights (sometimes called dissenters’ rights). Instead of accepting the deal price, you petition a court to determine the fair value of your shares independently. It’s not a simple protest. You must 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 appraisal cases typically take years to resolve. This remedy is realistic mainly for institutional investors or shareholders with large concentrated positions, not someone with a few hundred shares.