A buyout, in finance, is an investment

Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 transaction by which the ownership equity

Ownership equity

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...

 of a company, or a majority share of the stock

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 of the company is acquired. The acquiror thereby "buys out" control of the target company.

A buyout can take the form of a leveraged buyout

Leveraged buyout

A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...

, a venture capital

Venture capital

Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...

 buyout or a management buyout

Management buyout

A management buyout is a form of acquisition where a company's existing managers acquire a large part or all of the company.- Overview :Management buyouts are similar in all major legal aspects to any other acquisition of a company...

. Where the company being bought out is a public company, a buyout is often called a "going private" transaction.

Non-corporate usage

The term may apply more generally to the purchase by one party of all of the rights of another party with respect to an ongoing transaction between the two. For example:

• an employer may "buy out" an employee's contract by making a single prepayment, so as to have no ongoing obligation to employ the person;

• a landlord may buy out the remainder of a tenant's lease, effectively paying them to vacate.

Contracts may have an explicit buyout provision setting forth the terms or price. In the alternative the matter may be negotiated by the parties. If the entire operation is not purchased, the remainder is referred to as a stub

Stub (stock)

A stub is the stock representing the remaining equity in a corporation left over after a major cash or security distribution from a buyout, a spin-out, a demerger or some other form of restructuring removes most of the company's operations from the parent corporation...

.

See also

• Management buyout
  Management buyout
  A management buyout is a form of acquisition where a company's existing managers acquire a large part or all of the company.- Overview :Management buyouts are similar in all major legal aspects to any other acquisition of a company...
  
  
• Leveraged buyout
  Leveraged buyout
  A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...
  
  
• Employee buyout
• Stub (stock)
  Stub (stock)
  A stub is the stock representing the remaining equity in a corporation left over after a major cash or security distribution from a buyout, a spin-out, a demerger or some other form of restructuring removes most of the company's operations from the parent corporation...
  
  
• Envy ratio
  Envy ratio
  Envy ratio in finance is the ratio of the price paid by investors to that paid by the management team for their respective shares of the equity. This metric is used when considering an opportunity for a management buyout...