Research On Legal System Of Share Repurchase

Company share repurchase refers to that a company, mainly an incorporated company, buys the shares of its own from the shareholders by using the funds of its own in a certain price. The share repurchase had rare precedents in China before. The occurrence of that become frequent in recent years, particularly in the reform of non-tradable shares which started in the second half of the year 2005.Lots of corporations adopted this measure to solve the problem of non-tradable shares. For share repurchase, China'old Company Law only prescribed some rules in principal. The new Company Law passed on December 7, 2005 made a significant modification. But, the rules are still not enough. The Chinese Bank Regulative Committee released on the Regulation on the Repurchase of Public Shares by Public Company (for test) in June 16, 2005 and had taken up some new regulative measures. The above two regulations are the main regulations on the legal system of share repurchase of our country. This current treatise mainly includes the following contents:Chapter 1 discusses the basic principles of share repurchase: the concept, the characteristics, the categories, the values and the disadvantages. The author of this treatise analyzes the studies of the academic circle and concludes that share repurchase mainly have the following characteristics:special corpus, particular objects, formality of contract, substantially law-related and both sides of effect. The category of the share repurchase mainly contains the follows: Classified by place, share repurchase can be divided into the repurchases inside the market and the repurchases outside the market. Classified by the corpus, repurchase can be divided into the repurchase from special shareholders, the repurchase from common shareholders, the repurchase from employees. Classified by the mode, the repurchases can be divided into open market repurchase, repurchases by offer, repurchases by the agreement, repurchase by exchanging offers and the TPR. The international community in present generally hold the view that the share repurchase mainly have the following functions:1.Share repurchase is the important financial lever that would better the capital structure of company; 2.Share repurchase is the useful tool to make stock value to return; 3.Share repurchase is an important method for the allotment of the profits; 4.Share repurchase is the important defensive weapon in the battle over the company controlling power;5.The share repurchase is a key factor before the actual application of employee encouraging mechanism;6.Share repurchase is a guarantee for part of the shareholders, etc. At present, the disadvantages of the share repurchase that the scholars analyzed mainly contain:1. The share repurchase may confuse the relationship between the company and the shareholder; 2.The share repurchase would violate the principle of capital maintenance;3.The share repurchase would violate the principle of equal ownership;4.The share repurchase may do damage to the shareholders which just own medium or small size of shares; 5.The share repurchase may lead to various kinds of criminal behaviors in the sphere of securities, etc.Chapter 2 discusses the mode of lawmaking on share repurchase. There are mainly two kinds of mode on the legislations of share repurchase: The first kind is the mode which adopts " forbidded in principal, permitted in exception" and that means the lawmaker forbid the happen of share repurchase in principle, but the exceptions of share repurchases are prescribed. Another mode is the mode which adopt " permitted in principle, forbidded in exception "which means that the law does not generally restrain the happen of share repurchase and allow the board of directors to make a decision by itself according to the rule of business judgment. Observing from the cases of share repurchase in the reform of non-tradable shares, the author of the current treatise get the following conclusions: Firstly, strictly speaking, only the United States adopt the mode of " permitted in principle, forbidded in exception" completely nowadays. This is connected with some special reasons. Secondly, the two great modes have a common characteristic in legislations on the share repurchase and that is the spirits of freedom are gradually taking the dominant position. Thirdly, the two modes of lawmaking on share repurchase are drawing close to each other and tend to a unification. Summarization and absorption of the advantages and the experiences of the two modes is extremely important for the legal construction of our country.Chapter 3 discusses the legislations and practical cases of share repurchase in China. The standing committee of the tenth National People Congress passed the emendation act of Company Law in the 18th meeting. The legal system of share repurchase is mainly prescribed in Article 143 of that law. The contents involve the follows: the situation which allows the happen of share repurchases; the dispositions of the share repurchased; the limitations on the amount and the source of money for repurchasing; the rights in the shares repurchased. The Chinese Bank Regulative Committee released on the Regulation on the Repurchase of Public Shares by Public Company(for test) in June 16, 2005 to confine the disadvantages of the share repurchase. This regulation aim at emphasizing the advantages and restrain the negative effect of the share repurchase. These related provisions are publicized in the background of the publicizing of the new Company Law and are intend to further clarify the legal system of share repurchase in the base of the Company Law. In the reform of non-tradable shares, the happen of share repurchase become frequent. The reason of this phenomenon is that the companies of our country usually have a special share structure. The author of the current treatise get the following conclusions from the cases of share repurchase happened in the reform of the non-tradable shares: Firstly, the share repurchase had multiple functions in the reform of non-tradable shares and this well illustrated the important values of the share repurchase in practical application; Secondly, the lawmaker should depend on the knowledges of the market corpus to push the formation of concrete legislations as far as possible and decrease the interventions on the behaviors of the companies. Again, the legal system of share repurchase still need further improvement.Chapter 4 discusses the possible measures of the reform on the legal system of share repurchase. Totally, the author put forward five concrete suggestions: Firstly, increase the legitimate types of the share repurchase in the foundation of the current Company Law. Secondly, reform the mechanism against the disadvantages of the share repurchase, including: limitations on the source of money and on the amount of shares to be repurchased; regulations on the price of the stock in the share repurchase; increase in the provisions for the restriction on the qualifications of the company to carry out the share repurchase. Thirdly, revise the provisions about the procedure of the share repurchase. The procedures include the procedure of making decisions and the procedure of creditor protection, etc. For the deciding procedure, our country should prescribe that the decision should be made by the shareholder's meeting; For the procedure of creditor protection, our Company Law ruled that the protection procedure is a must when the company reducing its capital or in the process of the merger. This is also a must in the process of share repurchase. Fourthly, clearly define the legal position of the shares repurchased. Our Company Law had better adopt the theory of "suspends". Fifthly, improve the system of responsibilities. This mainly includes civil responsibilities, penal responsibilities and administrative responsibilities. Because,in essence,the company law is part of the commercial law, the civil responsibilities should take the dominant position in this system.