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Say there is a very rich, very unpopular individual. This individual wishes to buy millions of dollars in stock in a company he or she thinks will be successful. The company, however, realizes that by being associated with this person they will become vulnerable to certain political/social actions such as boycotts.

Can this company block said individual from purchasing the company's stock in the market?

Mindwin Remember Monica
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WannabeCoder
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    I don't know enough about this to write up a proper answer, but some companies have attempted to fend off hostile takeovers by issuing more stock so that the buyers could not acquire a majority of the shares. https://en.wikipedia.org/wiki/Shareholder_rights_plan – zwol Jan 31 '17 at 22:06
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    Companies don't sell their stock, usually. The stock is already out there on the market, shares owned by investors. The only time when a company actually sells it's stock is offering, which is quite rare event in a company lifetime. – Agent_L Feb 01 '17 at 09:07
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    A company can refuse to sell the stock it owns, just as I can refuse to sell mine. You are asking if it can stop someone from buying the stock from the market, not from the company. – Mindwin Remember Monica Feb 01 '17 at 12:35
  • @zwoi - the macaroni or poison pill, macaroni because the stock swells like macaroni in the pot. – mckenzm Feb 02 '17 at 06:31
  • The more stock that individual buys, the higher the price will be, each stocks will get higher and higher. – the_lotus Feb 02 '17 at 12:45
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    @the_lotus nonsense. – Carl Witthoft Feb 02 '17 at 14:10
  • I wonder what person this question might be asking about...

    ;)

     – Parthian Shot Feb 15 '17 at 23:36

5 Answers5

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I assume you are talking about a publicly traded company listed on a major stock exchange and the buyer resides in the US. (Private companies and non-US locations can change the rules really a lot.)

The short answer is no, because the company does not own the stock, various investors do. Each investor has to make an individual decision to sell or not sell. But there are complications. If an entity buys more than about 10% of the company they have to file a declaration with the SEC. The limit can be higher if they file an assertion that they are buying it solely for investment and are not seeking control of the company. If they are seeking control of the company then more paperwork must be filed and if they want to buy the whole company they may be required to make a tender offer where they offer to buy any and all shares at a specific price. If the company being bought is a financial institution, then the buyer may have to declare as a bank holding company and more regulations apply. The company can advise shareholders not to take the tender offer, but they cannot forbid it.

So the short answer is, below 10% and for investment purposes only, it is cash and carry: Whoever has the cash gets to carry the stock away. Above that various regulations and declarations apply, but the company still does not have the power prevent the purchase in most circumstances.

zeta-band
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    For a short answer, you go into some long-winded detail. +1 anyway. – JTP - Apologise to Monica Jan 30 '17 at 23:12
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    What can I say? Buying a substantial fraction of a company is complicated. – zeta-band Jan 31 '17 at 00:36
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    You might also mention what happens if they offer to buy the entire company and an individual investor doesn't want to sell. +1 great answer otherwise. – user541686 Jan 31 '17 at 01:27
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    @Mehrdad i guess doesn't matter. As long as Mr Devil owns 99% and Mr Stubborn owns 1% mr devil can do anything he wants. – vasin1987 Jan 31 '17 at 05:00
  • How about the more interesting scenario of an IPO, where the company does own the stock? – Michael Borgwardt Jan 31 '17 at 10:34
  • @vasin1987 IANAL; but I think most countries have some shareholder protection laws. In addition there might be shareholder agreements that limits what Mr Devil can do with his stock. – Taemyr Jan 31 '17 at 11:28
  • @MichaelBorgwardt Does the company own the stock immidiately prior to an IPO? – Taemyr Jan 31 '17 at 11:29
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    In the UK, you only have to buy a certain percentage (high 90s) and then you can legally force other shareholders to sell their holdings so you can take the company completely private. –  Jan 31 '17 at 12:19
  • @Taemyr the company and its investors own the stock prior to an IPO. –  Jan 31 '17 at 12:20
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    This answer assumes that the company has already sold stock, so it can't put new conditions on ownership of that stock because it's now in the hands of third parties (the shareholders). But what if a company is privately held, and then wants to have an IPO; can it attach conditions on who can buy its shares with contracts like, "You can't sell to X; anyone who you do sell to has to agree to these same conditions.", or does it have to give up that right by law to be listed on a stock exchange? Or, if already publicly traded, can shareholders opt-in to such a contract after the IPO? – Nat Jan 31 '17 at 17:21
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    Went ahead and asked this as a question: Can a company control its stock through contracts with stockholders?. – Nat Jan 31 '17 at 17:39
  • Many privately traded companies have conditions attached. The one I worked for said that all shares must be sold if you leave the company, and shares could only be sold back to the company. The share price was set by UK tax authorities. @Chemical Engineer – Nigel Touch Feb 02 '17 at 20:09
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A more serious problem: how do you know who's really buying your stock?

"Shell companies" are an increasingly obvious problem in corporate and tax accountability. There are jurisdictions where companies can be created with secret lists of directors and shareholders. If stock is bought by one of these companies, it is very hard to trace it to a particular individual.

pjc50
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In the UK, this is the very definition of a Public Limited Company. A Limited Company can restrict how its stock is trades and who can buy and sell and when, a Public Limited Company cannot.

Most stock exchanges will only allow Public Limited Company stock to be traded.

Therefore a company can control who its stock holders are or be traded on a Stock Exchange.

Ian
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  • This seems to get to the heart of the matter. In most jurisdictions there are probably legal mechanisms you could use to restrict who stock can be held by, but exercising them is almost surely going to preclude trading on public stock exchanges. – R.. GitHub STOP HELPING ICE Feb 01 '17 at 22:49
  • The law can also prevent purchases, as can letters of offer to employees. – mckenzm Feb 02 '17 at 06:32
  • @mckenzm, that does not prevent someone purchasing or holding stock, it just stops them keeping their job is they do so..... – Ian Feb 02 '17 at 09:39
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The company could use registered shares with restricted transferability, i.e. shares that require the consent of the issuing company for a change of ownership.

Martin Schröder
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The answer to this question is given by the fact that many public companies have people who are opposed to the company's aims or practices and who own their stock, often a single share, for the purposes of turning up to shareholder meetings and haranguing directors/asking awkward questions/disrupting proceedings, etc.

If public companies could stop these campaigning shareholders from owning stock they would.

jwg
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