> Corporation buys back $100 of shares from 1 shareholder. No taxes were due there as there were no capital gains for shareholder 1. Shareholder 2 now owns 100% of the corporation, so their investment is now, all other thing equal, worth $200.
Maybe I don't understand how stock works, but wouldn't shareholder 2 still own only 50%, with the corporation still owning 50% of itself?
There is a disconnect here that needs to be clarified but you are actually part correct. The 'corporation' owns the shares, but shareholder 1 owns the corporation and thus it is his now. Shareholder 1 now owns 100% of the company but the company is worth 50% less because it spent half it's money on buybacks. So shareholder 1's value of ownership did not increase at all, only shareholder 1's % of ownership. Stock buybacks do not add value to a company and are not like a dividend at all. All they are is an indicator that the board thinks the shares are undervalued.
So...I know realistically, this isn't possible, but what if a corporation bought back every share except for one. Would that one lucky shareholder who probably bought his one share for $20 now own the entire corporation?
A stock buyback is not like the company is buying its own stock and holding it in a brokerage account.
Think about it like ... the opposite of an IPO. Instead of dividing up the firm into n shares and selling them to investors for cash; it's buying back n/m shares and effectively canceling them.
After the buy back, there are fewer shares of the company which are proportionately more valuable assuming the market capitalization has remained the same.
I looked up if a company can do the opposite - basically poof additional shares into existence and sell them - and found out they basically can and it's called stock dilution.
How is that legal? It doesn't make sense to me that if a share is worth x% of a company that said company can just decide "Nah, you actually now only own half of that" and sell more shares.
Fake edit: I googled "how is stock dilution legal" and found this [0] which explained it well and now it makes sense to me. The diluted stock might be a smaller % ownership, but since the company gained value because of money coming in, the dollar value of the shares stays the same.
No, the corporation retires the shares after the buyback. Total outstanding shares decrease. All remaining shareholders get a larger percent ownership of the corporation
Maybe I don't understand how stock works, but wouldn't shareholder 2 still own only 50%, with the corporation still owning 50% of itself?