Legal Analysis On Share Repurchase Of Chinese Listed Companies

Share repurchase originated in developed western countries is a common way of capital operation in western capital markets.The positive functions of the share repurchase system include stabilizing the company’s stock price,replacing dividend distribution,preventing hostile takeovers,and protecting the interests of small and medium shareholders.China’s securities market has developed relatively late.Initially,the stock repurchase was only used to reduce the state-owned shares and to split the shares,so other functions of the system have not been fully reflected.However,with the continuous improvement of the securities market,listed companies have realized the positive functions of share repurchases in improving the company’s stock price and optimizing the company’s capital structure.As a result,many share repurchase practices have emerged.It has become an important part of improving our company law.From the perspective of comparative law,there are currently two typical international share repurchase models of listed companies,namely,"principles allow exceptions to prohibition" and "principles prohibit exceptions to license".In October 2018,China adopted a decision on the revision of the company law,in the form of an amendment to the company law,the restrictions on company share repurchase,especially the share repurchase of listed companies,were relaxed.Although " required to maintain company value and shareholders’ rights" has been added as a reason for repurchase,it is generally believed that China still adopts the "principle prohibit exceptions to license" model established by the early share repurchase system,that is,the reasons for allowing repurchase are only a few types of special circumstances permitted by law,and other than that,share repurchases are not allowed.Subsequently,the Shanghai Stock Exchange and the Shenzhen Stock Exchange successively issued the "Implementation Rules for Repurchasing Shares",referring to the mature repurchase experience outside the region,and made detailed regulations on the repurchase of listed companies and the reduction of shares.However,it must be noted that the rapid development of the capital market places higher requirements on the share repurchase system.Whether in legislation or in practice,the share repurchase system of China’s listed companies still needs to be improved.Although the current revision of the share repurchase system for listed companies has a background of "market rescue" under the downturn of the stock market,this should not be the only consideration for reforming the share repurchase system in China.It should still be based on the long-term healthy development of the capital market to balance the interests of companies,shareholders,and creditors as legislative principles.On this basis,the article starts from analyzing the shortcomings of the existing repurchase system,with a view to improving the stock repurchase system of listed companies in a targeted manner.One is that the nature of the repurchase of shares and the treatment method are not clear.The reduction of shareholding after repurchase has a huge impact on the capital market.There should be more legal provision about the use of the funds obtained from the reduction of holdings,the transaction method of the reduction of holdings,and the increase of capital during the reduction.Secondly,the newly added "protection type" repurchase is provided for companies whose stock prices are underestimated to increase their stock prices.It is an important relief tool,but due to the unequal financial resources and information,many illegal acts are easily bred in the repurchase process,such as market manipulation,insider trading,securities fraud,etc.,and need to be closely regulated by law.It is recommended to establish a "safe harbor" system to distinguish between legal share repurchase behavior and market manipulation.Thirdly,the existing share repurchase system lacks necessary regulations on the legal consequences of a company’s violation of the repurchase.The focus of setting up the liability for illegal repurchase lies in administrative responsibility and criminal liability,but do not pay enough attention to civil compensation liability.Therefore,the effectiveness of illegal repurchase actions should be established in legislation.At the same time,a timely and effective civil compensation liability mechanism should be established,and it is necessary to strengthen the coordination between private rights relief and public rights supervision to improve regulatory efficiency in the context of an increasingly diversified portfolio of capital market investors.