Research On The Treasury Share Repurchase System Of Listed Companies

The treasury share repurchase system is a systematic arrangement around the processes of repurchases,acquisition and subsequent management of treasury shares,which is usually used as a legal capital instrument in developed securities markets.The attitudes of countries around the world towards repurchases of treasury shares generally reflect the development trend from prohibition,acceptance with high restrictions to providing more opportunities and space for treasury shares.This is because the positive role of treasury shares in the of the securities market regulation and the internal optimization of companies has gradually become evident,with the financial risks,violations of legal principles and rights incurred by it being kept down by restrictions under mature legal system of treasury share repurchase.Before the amendment of the Company Law(2018)was promulgated,the tide of buying-back treasury shares in the secondary market transactions of listed companies in China had begun to rise,so the emergence of corresponding new laws,regulations and supporting policies is almost inevitable.Since the implementation of the 2006 Company Law,China has adopted the principle of prohibition with exceptional permission,under which companies were allowed to hold shares to donate to staff during a short period of time.Now,with the continuous development of Chinese securities market,the time is ripe for the use and function of treasury shares.The Amendment to the Company Law(2018)broadens the legal incidents for repurchase and loosens restrictions for repurchases and holding of treasury shares,showing an attitude of encouragement towards share repurchases and the flexible use of treasury share of listed companies.With the announcement of the amendment to the Company Law(2018)and the subsequent enactment of supporting regulations,there shall be powerful and effective supervision,which meets the requirement of the actual situation,for the improvement of China's treasury share repurchase system.It should be noted that suggestions of excessive changes to the Company Law shall not be made,because such suggestions may violate the principle that the laws must not be constantly changing.Rather,the analysis should start with the improvement of the legal system as a whole.This thesis aims to summarize the theory of treasury shares,analyze the content and elements of the treasury shares repurchase legal system after the amendments and supporting regulations and policies are promulgated,and make suggestions for China's treasury share repurchase legal system combined with the practice of buy-back;among which,the historical analysis method,empirical benefit analysis method and simple data statistics approach are adopted.The thesis is divided into the following four parts:The first part gives the theoretical overview of the concept,characteristics,functions and motivations of the treasury share repurchase.First of all,it is clear that treasury shares are purchased by the listed company and have been issued by the company,and have not been transferred and cancelled;repurchase is the only approach to purchase treasury shares,and the treasury share repurchase system is around the proposal,resolution and disclosure of repurchase program,combined with implementation of treasury share repurchase transactions and management within the legal period after acquisition.Treasury shares usually have legal characteristics as below: treasury shares are not assets in nature,and of which shareholders' rights are limited,the amount of repurchases is under restriction,and treasury shares shall be handled within the legal holding period.The analysis of functions of treasury stock repurchase mainly includes the establishment of long-term employee incentive plans,reducing the costs and obstacles of the use of convertible bond product,boosting the market confidence in the listed company in order to increase the stock price,and increasing the internal equity of shareholders through equity reduction and optimizing the company's capital structure and providing various functions including anti-takeover,the above-mentioned functions can also be used as a reverse analysis of the incentives for corporate repurchases.From the perspective of law and economics hypothesis,the thesis refers to the signal hypothesis,earnings per share hypothesis,MM model theory,stock option incentive hypothesis,financial leverage theory and other hypotheses.The first part briefly introduces the repurchase system of treasury shares and systematically lists the positive effects that treasury shares may play on the company structure,internal shareholders and the secondary market in practice.The second part focuses on the current legal system of treasury stock repurchase and provides the analysis of legal principles and regulatory rules from the perspective of comparative law.Firstly,the content of the Amendment to the Company Law(2018)is interpreted,analyzed,and compared with the Company Law before the amendment,which is specified to the broadened statutory grounds,simplified decision-making mechanisms,clear repurchase methods,relaxed funding sources,increased upper limit of the amount,the extension of the holding and processing period,and the establishment of the information disclosure system and various aspects.The policies and regulations of the CSRC(China Securities Regulatory Commission),the Shanghai and Shenzhen Stock Exchanges on the requirements for treasury stock repurchase practices is also analyzed in detail.In particular,the repurchase rules of the stock exchange contain detailed explanations on the information disclosure obligations of listed companies,the diligence obligations of management personnel and transaction restrictions,the repurchase window period requirements and the repurchase price limits and funding source restrictions,which follows the spirit of the Company Law with specific procedures and operational requirements.In order to provide a comparative law perspective for the legal system,the thesis summarizes the development trend of the legal system from being strict to laxer,and lists the legislation and regulatory requirements of representative countries.The principles,development trends,legislative regulations and attitudes,the establishment of safe harbor rules and the nature of indirect holding of treasury shares are described.This section pays attention to the content of the Company Law and supporting regulations and policies,focus on the content of changes before and after,and analyzes the typical legal system patterns and specific contents of jurisdictions including the United States,Germany,and Japan.The third part focuses on the implementation of treasury share repurchases after the issuance of the amendment,and analyzes the core problems of treasury share repurchase.The analysis of information and data of 2019,and comparison with the pre-revision Company Law,focuses on the scale of repurchases,the frequency of use,differences between active and passive repurchases,and cases of delayed repurchase;from which,the termination of the unfinished treasury stock repurchase program of listed companies shall be the center of attention,and be analyzed from the company's announced motives of termination,the mechanism for making termination decisions,and administrative supervision measures taken by the CSRC.The analysis of risks of treasury share repurchases includes the existence of insider trading and other illegal activities,infringements on creditors' rights and interests,and the "phony repurchase" to induce investors,as well as internal violations of corporate governance principles,executive's abuse of control power,and the imbalance of interests between internal shareholders.This part mainly combines the overview of the legal system in the second part,and lays the foundation for the fourth part,so as to prevent the thesis from losing practical value because of providing deviating the reality.The fourth part focuses on the problems,risks and corresponding solutions of treasury share repurchases.This section proposes perfection for the basic legal system of treasury stock repurchasing and necessary supervision specifications.From the perspective of legislation,it shall be required to improve the decision mechanism,clarify the nature of indirect holding of treasury shares through a third party,strengthen the restrictions for borrowing as the source of treasury share repurchase funds;from the perspective of supervision,it is necessary to improve the safe harbor rule,strengthen the punishment of improper behaviors of management personnel and controllers,improve the effectiveness of information disclosure,and strengthen the follow-up review of the implementation progress of the disclosed program.From the perspective of correspondence between problems and solutions,to reduce the risks of investors and the market,an open,transparent and effective information disclosure system should be established to regulate the behavior of changing or terminating repurchase programs without legitimate reasons;To ensure that the treasury share system shall not be deliberately circumvented,the situation of repurchasing shares through affiliated company as a disguise should be restricted;and the legitimacy of corporate decisions and the protection for minor shareholders' rights shall start with senior management and major shareholder's performance of fiduciary duties,lockup period as well as strengthening punishment for breach of such obligations.This part of the analysis is based on the repurchase effect of the treasury share,the legal system pattern,and the practical benefits aforementioned.From the perspective of logical structure,the thesis in the first place introduces the concept and theory,points out the nature and characteristics of treasury share repurchases as a capital instrument,and summarizes the motivations and corresponding functions of treasury share repurchase since its creation and usage.Next is the main research object of this thesis,namely the laws and regulations based on the Amendment to the Company Law(2018),analysis of the differences between the content of the legal system before and after the amendment from a practical perspective,which likewise refers to the legislative principles and amount limits widely adopted by representative jurisdictions in view of necessity.This thesis analyzes the function mechanism of the system,which is coherent with the status and effects of implementation in China,and then provides a background for raising specific issues and risks.Finally,in terms of problem-solving approaches,this thesis always follows the principle that legislation and supervision should be combining punishment with leniency,to ensure that the legislative attitude of encouragement and support and the rigorous supervision principle complement each other.Instead of restricting space for share repurchase,it shall be better to ensure the unabridged legal framework,with the treasury share repurchase stimulated by legislation and under strict supervision,in order to avoid that the disclosed program of the treasury share repurchase,even reasonable and complete,lacks impetus in practice or violates the information disclosure.