A Study On Shares Repurchase Of The Listed Companies

This thesis uses comparative method, historical method and economic method articulating the fundamental principles on shares repurchases by listed companies; summarizing the developmental process and trend of shares repurchases in the civil law systems and Anglo-American law systems, comparing the different experience of succeeding repurchasing shares in the civil law systems and Anglo-American law systems, analyzing its historical evolution in our country and its differences from relevant systems in other jurisdictions, and finally giving some suggestions on how to improve our regulations on repurchasing shares by listed companies. In order to forward the interests of the listed companies and promote economic development, on one hand, we should fully understand and make full use of the advtanges of shares repurchase, on the other hand, we must pay full attention to the risks of this tool and design some practical systems to prevent it. How to realize the aforesaid purpose in our legal system is what this thesis focuses on. To be exact, this thesis includes five chapters:Chapter one deals with the juridical basis of shares repurchase. Subchapter one analyses the characteristics, categories and basic model of shares repurchase, especially theories on its motives, including inducement theory, financial theory, signal theory and agency theory. Subchapter two spells out the benefits of shares repurchase, including returning money to shareholders as a substitute for distributing dividends, adjusting the outstanding shares' prices and stabilizing the securities market, facilitating employee stock ownership plan, facilitating company reorganization as a better alternative of issuing new shares, consolidating the present controlling powers as a efficient way of combating hostile mergers and so on. Subchapter three discusses the potential risks of shares repurchase, such as imparadising the company's financial soundness and the interests of the company's creditors, breaking the rule of equality among all shareholders, being misused by the directors to fulfill their own interests, jeopardizing the normal control of the company, affecting the equality of securities transaction. Subchapter five expounds the frame of this thesis, analyses the relationship between shares repurchase and the company's distinct legal personality as well as the relationship between shares repurchase and principles of capital maintenance in detail. In one word, shares repurchase doesn't conflict with any theories and it's decided by the public policy completely whether to permit shares repurchase; there are benefits as well as risks to permit repurchasing shares, but the benefits dominate; our company law should go with the worldwide tide and increases the circumstances in which the listed company can repurchase its outstanding shares and designs practical system to prevent its potential harm at the same time.Chapter two discusses the circumstance in which the listed company can repurchase its outstanding shares. The circumstance in which the listed company can repurchase its outstanding shares is the starting point and center of the system about shares repurchase. In the foreign jurisdictions, the relevant legal system can fall into three categories: "free permit", "forbiddance in principle with some exceptions", and "compromise between permit and forbiddance". The"free permit"system is stood for by the America company law which is followed by the Japan law in 2001. The German law and Taiwan District company law of China adopted the "forbiddance in principle with some exceptions" system. The UK company law and France company law adopted "compromise between permit and forbiddance" system. In those jurisdictions, Japan reformed its company law in 2001 and permitted the company to repurchase its outstanding shares freely; France reformed its company law in 1998 and permitted the listed company to repurchase its outstanding shares with any purpose. UK reformed its company law in 2006 and permitted the company limited by shares to repurchase its outstanding shares with any purpose. As we can see, it's the common development trend of company law to increase the purposes with which the company repurchases its outstanding shares and the speed as well as the extent of this reform increased distinctly.Chapter three discusses the legal system to prevent the potential harms of shares repurchase. In order to facilitate the company's financial flexibility, it's the common development trend of company law to increase the purposes with which the company repurchases its outstanding shares. However, shares repurchase may also produce some harms while make contributions to the listed company and the economy, which must be paid full attention and should be prevented by the relevant legal system. As we can see in other jurisdictions, the preventive system includes: measures on procedure and finance before repurchase, measures on evasive act and on disposal of shares repurchased during the repurchase, and measures on illegal repurchasing shares. To be exact, the preventive system included: just procedures of decision-making to prevent the directors to fulfill their own interests instead of the company's interests; just procedures of execution to prevent the purchase being misused to jeopardize the equality among shareholders or securities transaction; restrictive finance available to repurchase to protect the legitimate interests of company's shareholders; measures to prevent the company and relevant parties from evading the forgoing restrictions; explicit and complete consequences of repurchase, such as the disposal of the repurchased shares, the rights and obligations of the repurchased shares, and the accounting of he repurchased shares; unambiguous liability for illegal repurchase.Chapter four discusses the regulations and practice of shares repurchase in China. The company law reformed in 2005 increases the circumstances under which the company can repurchase shares, but it sill forbids repurchase in principle and only allows very limited exceptions. In practice, as to the purpose, the listed companies repurchased shares in order to change the illegitimate ownership structure of the company and rarely to use it as a financial tool. With regard to the repurchasing subject, the listed companies repurchased the shares owned by the state mainly. With regard to the repurchasing way, it's very common for the two parties entering into the contacts in private. As to the finance to repurchase, many companies used its capital, reserve and even the money raised by issuing new shares to some extent. With regard to the disposal of the repurchased shares, the company law doesn't allow treasury shares, but it doesn't provide the repurchased shares' nature. Overall, shares repurchase has dissimilated in our country, which serves the state-owned shares and is used to reduce the state-owned shares to some extent.Chapter five discusses the defects in our present legal system of shares repurchase and gives suggestions on how to improve. Subchapter one analyzes repurchasing shares' practical significance as well as the present defects and shortcomings of the relevant regulations. As a useful finance tool, repurchasing shares helps to increases the listed companies' interest, what is more, it can produce far-reaching significance to the country's policy and economic system. However, our present regulations are conservative and defective. Subchapter two finds the way how to improve our regulations. We should increase the circumstances under which the listed companies can repurchase its outstanding shares, allowing them to repurchase their outstanding shares when it's necessary to protect the interests of the company and its shareholders. At the same time, we should take more preventive measures, including just procedure, restrictive finances, consequence of repurchase, evasive repurchase, effect of illegal repurchase and administrative supervision.