May public companies engage in share buybacks and under what circumstances?
Share buybacks are allowed only under certain restrictions of the Austrian Stock Corporation Act and for certain purposes, e.g. to prevent imminent harm to the company, to offer shares to the directors or employees of the company (subject to authorization by the shareholders’ meeting), for capital reduction.
Yes, they may. Share buyback is defined by the Brazilian Corporations Law as the transaction by which a company pays back shareholders for the acquisition of such shares and, as a result, they are withdrawn from the market (with or without reduction of the company’s corporate capital). Typically, all types of shares may be subject to buyback, to the extent approved by an extraordinary shareholders’ meeting. The company’s bylaws will determine the advantages provided in each class of shares and respective restrictions, without the need of calling upon an extraordinary meeting to discuss such matter.
Listed companies may engage in share buybacks subject to restrictions, including that:
- shares so purchased (either on the open market or privately) must be cancelled, except when they are held for distribution to employees or managers, for liquidity programs of certain listed companies and for non-listed companies for use in acquisitions, mergers or certain other operations; and
- a company may not hold more than 10% of its own shares or 10% of each category of its shares.
Share buybacks are permitted under certain circumstances. Apart from in reorganization situations, the most relevant cases are buybacks on the basis of an authorization of the shareholder meeting. Such resolutions may be valid for a maximum of five years, and will determine the price range as well as the proportion of the registered share capital which may be bought back, subject to the following cap: The acquired shares together with any other treasury shares held by the Company must not exceed 10% of the Company’s registered share capital. The Company must be able to cover the consideration by free reserves, which is equity that would be distributable.
Trading in own shares by a public company benefits from the exemption from the prohibitions on market abuse, if such trading takes place in the framework of share buyback programs which comply with the conditions set out in Art.5 of Regulation (EU) 2014/596. More specifically, the conditions are the following:
(a) the full details of the program are disclosed prior to the start of trading;
(b) trades are reported as being part of the buy-back programme to the competent authority of the trading venue and subsequently disclosed to the public;
(c) adequate limits with regard to price and volume are complied with; and
(d) it is carried out with a purpose (i) to reduce the capital of an issuer (ii) to meet obligations arising from debt financial instruments that are exchangeable into equity instruments; or (iii) to meet obligations arising from share option programmes, or other allocations of shares, to employees or to members of the administrative, management or supervisory bodies of the issuer or of an associate company.
In Hong Kong, companies are allowed to repurchase their own shares so long as they are in compliance with the Codes on Takeovers and Mergers and Share Buy-backs published by the SFC which aims to provide fair treatment to shareholders who are affected by the share buybacks. The Hong Kong Stock Exchange provides daily Share Repurchases Report on its website which provides details of share buybacks transactions including the name of the listed company, the number of securities purchased on that day and the securities purchased on the Hong Kong Stock Exchange in the year to date. Share buybacks are often commented as an indication that the current share price of a company is discounting its real earnings growth potential and will signal an upcoming market rebound. For instance, the Hang Seng Index has rebounded 29 percent over the next 12 months after the Index had fallen to the lowest in the past three years, following a jump in share buybacks in January 2016. As of July 2018, about 123 listed companies have sought to repurchase their shares from the Stock Exchange, as compared to 158 listed companies in the year of 2017 (Bloomberg, “Surging Hong Kong Stock Buybacks May Set Stage for Rebound”, July 26, 2018).
Listed companies may generally engage in share buybacks. While the CA provides several situations under which a company can buy back its shares, if a listed company desires to engage in share buybacks through the market, it can conduct them based on agreement with the shareholders who are willing to tender shares. To do so, the company is required to obtain an approval of its shareholders' meeting, or, where the articles of incorporation so provide, the board of directors' approval. Also, the amount of money to be used for share buybacks cannot exceed the distributable amount under the CA at the time of share buyback.
Share buybacks may be implemented by public companies provided that in compliance with general corporate law requirements (such as on shareholders’ approvals, capped to 10% of share capital and in compliance with the company’s interest and the equal treatment of shareholders). These operations are also subject to demanding disclosure requirements and to the market abuse regime.
Korean regulations, including the KCC and the FSCMA, do permit acquisition of treasury stock subject to certain restrictions. Treasury stock may be acquired by listed companies within the extent of the distributable profit of the immediately preceding settlement period, and by a resolution of the BOD. There are certain exceptions, and acquisition of treasury stock is not limited to distributable profit if (i) caused by the merger of the company or the transfer of all businesses of another company, (ii) necessary to obtain the objectives in connection with enforcing the rights of the company, (iii) required for the disposal of fractional shares or (iv) a shareholder exercises his or her appraisal right.
Listed companies may engage in share buybacks subject to certain limitations under corporate and financial markets laws. Unless shareholders authorize the cancellation of shares, treasury shares are limited to 10% of the issued share capital and freely available equity must be available in the amount of the acquisition price. In addition, the principle of equal treatment of shareholders must be observed (generally requiring to buy back shares from individual shareholders at market price). Buybacks are also subject to the rules relating to insider trading and market manipulation of the Financial Market Infrastructure Act (FMIA). In this regard, certain safe harbors for repurchase programs apply, which in turn are subject to certain black-out periods including in case of a postponement of the publication of price-sensitive information.
Yes. A share buyback refers to the repurchasing of shares on the open market, or from company shareholders directly, by the company that issued them. While the SEC imposes liability for fraudulent practices, including share buybacks, Rule 10b-18 promulgated under the Exchange Act offers a safe harbor for companies seeking to repurchase their own shares. To be eligible for the safe harbor, the company must meet four conditions: (1) the company must purchase all shares from a single broker or only deal during a single day; (2) the company, with an average trading volume of less than $1 million per day or a public float of less than $150 million, cannot trade within the last 30 minutes of trading on a given trading day (companies above these amount can trade until the last 10 minutes); (3) the company must repurchase the shares at a price that does not exceed the highest independent bid or the last transaction price quoted (whichever is higher); and (4) the company cannot purchase over 25 percent of the average daily volume. Typically, the company pays the shareholders, with company profits, cash reserves, or borrowed money, the market value per share and re-absorbs that portion of its own ownership that was previously distributed among outside investors.
In recent years, companies have been more likely to choose share buybacks instead of issuing dividends to distribute cash to shareholders. Although this process, generally, can be viewed as redistribution, rather than additional distribution of cash away from the companies, some have argued that share buybacks are neither good for the companies nor the economy.
In order for a public company to buy back shares, it must have the ability to do so under its constitution (which would typically be the case), and must seek authority from shareholders to do so (most listed companies seek authority on an annual basis at their annual general meeting subject to certain limits). Buybacks by public companies must be funded either through distributable profits or the proceeds of a fresh issue of shares for the purpose of financing the buyback.
Under the Listing Rules, buybacks must be made by way of tender offer if the price paid is 5% higher than average market value of the company's equity shares for the 5 business days prior to the day the purchase is made or if purchases are of 15% or more of any class of its equity shares.
Buybacks may be on or off market, though typically listed companies purchase their own shares on market after announcing to the market that they intend to do so. Buyback programmes for listed companies are highly regulated and may be subject to the City Code on Takeovers and Mergers, the Listing Rules, the Disclosure and Transparency Rules and/or MAR.
The repurchase of equity or voting securities (or securities convertible into equity or voting securities) by public companies in Canada is referred to as an “issuer bid” and is subject to certain rules meant to ensure that all shareholders are treated equally. It is possible for companies to effect large repurchases in what are referred to as “substantial issuer bids” by preparing a bid circular containing prescribed disclosure and following certain prescribed procedures, including keeping the bid open for a minimum of 35 calendar days. In the alternative, companies can effect normal course issuer bids through the facilities of the TSX for up to the greater of 10% of the issuer's public float and 5% of the issued and outstanding securities of the class that that are subject to the bid. Public companies can also repurchase securities from employees and securities that are redeemable in accordance with their terms.
Share buybacks are governed – as a general rule – under the ICC.
Pursuant to Art. 2357 ICC, share buybacks shall be resolved upon by the shareholders’ meeting (see point 20 above), which must determine, inter alia: (i) the maximum number of shares to be bought-back, (ii) the program term, which cannot exceed 18 months, (iii) the price range for the purposes of the share purchases, (iv) shares disposal rules and limits, to be complied with by the board of directors in managing the treasury shares.
Treasury shares are deprived of any voting rights. Pre-emption rights (diritti d’opzione) and rights regarding the distribution of profits are sterilized and apportioned proportionally to the other outstanding shares.
With sole reference to listed companies, the aggregate par value of the shares to be brought-back (adding the aggregate par value of the shares held by controlled entities) cannot exceed an amount equal to 20% of the corporate capital. Certain exemptions to said quantitative limit apply, under Art. 2357-bis ICC.
Under no circumstances the company may subscribe its owns shares.
The nominal value of the shares that will be accepted as an acquisition and pledge cannot exceed one tenth of the registered or issued capital. The conditions for the share buybacks in JSCs are as follows:
- The GA must authorize the BoD at most for 5 years.
- The nominal value of the shares and the upper and lower limits of the amount to be paid will be stated.
- The BoD will state in each authorization request that these conditions are met.
- The shares shall be paid-up completely.
(TCC, article 379)
The shares acquired or accepted as pledge in contradiction with TCC shall be disposed of or the pledge on them shall be removed within six months as of the date of acquisition or acceptance of the pledge (TCC, article 385).
In accordance with the article 5/1 of the Communiqué on Share Repurchase, the GA must authorize the BoD to repurchase its own shares in public companies. However, this authorization will not be needed for the companies, whose shares are traded on stock exchange, if this purchase is necessary to prevent a probable and serious loss. A probable and serious loss is deemed present if average daily costs of shares are under the nominal value or this cost has lost value over 20%. In case these conditions are not met, the only way for the company to purchase its shares by BoD is to get the approval of Capital Markets Board.
The nominal value of the repurchased shares cannot exceed 10% of the paid-in capital (Communiqué on Share Repurchase, article 19).
The company cannot repurchase its own assets if the company delayed to make the internal matters disclosed (Communiqué on Share Repurchase, article 10/1).
Safe for circumstances where buybacks are necessary to prevent imminent harm to company, public companies may buy back their own shares only upon the approval of the general meeting of shareholders, which shall lay down the general conditions for such acquisition, such as the maximum number of shares to be offered, the period within which the shares may be acquired, which may not be longer than five years, and in the case of acquisition against consideration, the maximum and minimum amounts of consideration. Further to that, the company may only buy back fully paid up shares. Finally, the offer for acquisition of such shares must be made to all shareholders that are in the same situation, except for publicly qualifying to that effect listed companies or where the approval of the general meeting was unanimous.
Such buyback may not cause the company's net asset value to drop below its share capital plus reserves whose distribution is proscribed by law or the articles of association. Such amount is further reduced by the amount of uncalled subscribed share capital where that is not booked on the assets side of the balance sheet.
Public JSCs may engage in share buyback by the GM decision and consent of the owners of such shares. The buyback may be conducted at any circumstances the GM deems necessary, except for a few exceptions including bankruptcy, unpaid dividends on preference shares etc.
In some cases, the company is required to perform a mandatory share buyback. In particular, any shareholder has the right to demand mandatory buyback of his shares if during the GM such shareholder voted against the company`s reorganization, material or related-party transaction, change of registered capital or refusal from preferential rights for buying additional emission shares.