On The Improvement Of The Legal System Of China's Listed Companies Share Repurchases

Stock repurchase is a capital operating instrument frequently used in the major market-economy countries and areas. The stock repurchase system can play an important role in optimizing the capital structure of companies, delivering to the market a signal of underestimated stock price of companies, allocating dividends to shareholders as a supplement of cash dividends, preventing potential hostile takeovers, protecting the interests of minority shareholders and being used as the employee incentive plan. However, this system can possibly play a negative part in violating the principle of capital maintenance as well as the principle of equality among shareholders, causing potential insider trading, and having adverse impacts on the capital markets. As such, the western countries have gradually improved their legal framework in connection with the stock repurchase system in order to make full use of its advantages while avoiding the disadvantages thereof.The capital market in China is still at its early stage and it is obvious that the financial regulatory system needs to be further improved. Non-doubtfully, the stock repurchase system is new to the Chinese market and has not been commonly used. Although some provisions have been adopted in the Company Law revised in 2005 with respect to the stock repurchase of listed companies, the legal framework in China on the stock repurchase are imperfect and needs to be further improved compared to those in western countries.This paper covers 3 chapters and the conclusion part as follows:Chapter I first discusses the definition of the stock repurchase system as well as the legal basis thereof. Further, it sets forth the positive and negative functions of the stock repurchase, and the particular values for Chinese capital market.ChapterⅡcompares two types of legislation mode in western countries, i.e. American mode and German mode. It then sets forth the choice between the two modes and the current legal framework in China in connection with the stock repurchase. ChapterⅢsets forth the author's suggestions on improving the legal framework of the stock repurchase in China with respect to the legislative principle as well as the applicable detailed measures. China has currently adopted the German mode regarding the stock repurchase system, however the scope of its application is too narrow. Furthermore, certain major issues including the source and proportion of repurchase funds, the procedure of stock repurchase, the legal status of the repurchased stocks and the liabilities of the unlawful stock repurchase, should be further clarified by laws and regulations.The Conclusion Part reiterates that the stock repurchase system in China should be further improved through gradual imperfection of the legal framework so that we can make full use of the advantages of such system.