Company Share (Stocks) Re-Purchase

The implement of Chinese corporate law plays a great role in the instruction ofmarket economic system and the establishment of modern enterprise system. However,with the booming development of market economy, the unadjusted points of corporatelaw begin to reveal. Since came into effect in July1994, Chinese corporate law hasbeen modified for three times, respectively in December1999, August2004andOctober2005. Provisions regarding to share repurchase in former corporate law canonly be applied in the situation of corporate capital decrease, and the2005modification expands the scope of corporate share repurchase. Economically,corporate repurchases its own shares is the substantial capital decrease. To strictlyrestrict share repurchase will facilitate capital maintenance and secure obligee’sinterests. However, share repurchase procedure lacks impartiality, which will damagethe interests of other shareholders and the obligees. Corporate repurchase of its ownshares will lead to cancellation of the corporate, and meanwhile other functions of theshare repurchase system will become invalid.Both advantages and disadvantages exist in the repurchase of the corporate ownshares as follows: Advantages, a) share repurchase can reduce the restrictions of sharetransferring. The corporate can restore investors’ confidence by repurchasing shares.In China, the issue of state-own shares decrease will still exist in the coming years;however the share repurchase system will help to solve this problem; b) sharerepurchase is the premise of implementing stock option system and employeeshareholding system. Under sufficient researches on share repurchase system inforeign corporate laws, this thesis properly puts forward the preconditions andimplementing procedures, broads the application scope of this system, and makes this system fully exercising its functions; c) Share repurchase can help corporate mergerand reorganization, and fulfill employee cultivation. It also can motivate the staff, andcontrol the price of corporate shares and the use of corporate capital. Disadvantages:Although to some extent share repurchase has its reasonability, as for the corporatecapital repurchase is a behavior to buy shares with the specific properties of thecorporation. The abstract capital doesn’t decrease in form, however in fact thefunctioning capital changes substantially. And this violates the doctrine of capitalmaintenance. Also share repurchase may bring about: the actual returning of capital toshareholders; shareholding irrelevant to capital decrease will lead to the paradox ofthe corporate acting as its own shareholders and the disorder of rights and obligationsbetween shareholders and the corporation. And as a result, responsible person of thecorporation may invade the interests of the shareholders and corporation; ifcorporations can repurchase their own shares at will, they will easily manipulateplunge on the stock market, mess up the securities market and induce insider trading.In early days, most countries prohibit share repurchase completely, except forcorporate capital decrease. However, with the fierce global competition, at the secondhalf of the20thcentury, many countries began to broaden the range of sharerepurchase gradually. To get over the rigidity of corporate law, China modifiedrelevant provisions in2005. So far, it has been7years since the last modification ofthe corporate law. During this period, the outbreak of the2008financial crisis sweptthis planet from the US and Europe to China, and its profound impact still hasn’t beeneliminated. Facing the globalization of economy and internationalization of themarket economy, to modify the corporate law is to enhance the competition ofChinese corporations and national competition. This thesis aims to providesuggestions for the innovation of corporate share repurchase system of our country,and also hopes that our legal system will keep pace with the developed countries.