Legal Regulation Of The Listed Companies In China Share Repurchases

Corporate repurchase of its shares, as a special form of stock transfer, refers to the legal activity of a company (a listed company) to purchase outstanding shares at a specified price and in a particular way. It has become a common form of capital operation and corporate financing. Concerning the legal system of corporate repurchasing of its shares, there are two legislative models in the world: (1) It's permitted in principal and forbidden in some exceptions; (2) It's forbidden in principle and permitted in some exceptions. Varied legislative models exist in different countries for their divergence in culture, religion and legal tradition. Common-law-legal-system countries adopted different repurchase systems from civil-law-legal-system countries. The same repurchase system even takes a new look in another country in the same legal system.Corporate repurchase of its shares is a new thing in China at present for the reason of underdevelopment of our stock market, comparing with developed countries. Stipulations in many regulations constituted an embryonic legislation on repurchase but are far away from a full system and cannot follow economic development of China. Under the circumstances, in 2004 legislative body of China issued Corporate Law Modification Draft (for comments), which have made significant modification to Corporate Law, allowing companies to repurchase shares of its own, less than 5% of the total shares, for the purpose of rewarding employees. This movement is a historic breakthrough and bears important and profound significance to the operation and development of national economy of China. However, the legal system of China concerning share repurchase is far behind the systems of other developed countries. It's necessary for the legislative body to make clear many issues in the system, such as applicable scope, time limit, resources of the capital for repurchase and so on. With the continued development of the economy and legislation in China, it's firmly believed that the legal system concerning corporate repurchase of its own shares will be mature in coming future.