We often hear the concepts of "equity repurchase" and "share repurchase". What are the differences between them and what can they bring to the company?
On December 13, Qudian announced a plan to repurchase shares of US$300 million. This repurchase plan brought Qudian a big pre-market increase, with an increase of 15.21%. Based on the current stock price, Qudian is currently worth US$1.735 billion.
Share repurchase can really bring such great benefits to the company? What is the difference between it and equity repurchase? So how to operate?
01
The concept of equity repurchase and share repurchase
The difference between share repurchase and equity repurchase is that the former refers to joint-stock companies (listed companies), while the latter is aimed at a limited liability company.
Share repurchase refers to the company's act of repurchasing shares issued or circulating outside the company according to certain procedures. It is a defense method to change the capital structure by buying back shares issued by the company on a large scale; for equity repurchase, my country's "Company Law" has clear provisions on equity repurchasing for limited liability companies. The purpose of equity repurchase permitted by the Company Law is to ensure the exit of objective shareholders and achieve the company's continuous and stable operation.
02
Share repurchase of listed companies
For listed companies, using the accumulated funds or debt financing after surplus income, they repurchase the common shares that the company has issued outside at a certain price, and use them as treasury shares or cancel them. This series of actions is "share repurchase".
share repurchase has important significance and role to the company itself. On October 26 this year, the Standing Committee of the National People's Congress reviewed and passed the "Decision of the Standing Committee of the National People's Congress on Amending the Company Law of of the People's Republic of China" and made special modifications to Article 142 of the Company Law on the Company's share repurchase system, expanding the scope of repurchase, simplifying the repurchase mechanism, and relaxing the repurchase conditions.
This modification has added many repurchase types, such as employee holdings , market value management, convertible bonds, etc. This also adds more possibility of share repurchase for many companies.
03
Co., Ltd.'s equity repurchase
"Equity repurchase" often appears in investment agreements. If the company needs financing to develop, it will sign an investment agreement with investors. At this time, investors can ask that when the company's business reaches a certain situation or fails to meet the required performance, the company must give the investor some compensation - this is what is often called " betting agreement ". This compensation can be cash compensation, or it can be the investor's decision not to cooperate with the company, and the company repurchases its equity .
Equity repurchase also has corresponding risks and disadvantages, such as:
1. If the paid-in capital is not completed, there is an obligation to pay-in capital after the repurchase;
2. If the equity is repurchased, you must pay-in capital after the repurchase.
2. If the equity is repurchased, you must pay attention to whether there is pledge or freezing, and whether there are third-party rights, otherwise it will affect the repurchase operation;
3. The shareholders of a limited liability company are responsible to the company based on their capital contribution. Therefore, the more shares you hold, the greater the responsibility you bear. Once the company loses, the losses will increase.
04
repurchase method, you need to understand
Enterprise assistant reminds you that companies can only conduct share repurchase/equity repurchase under several circumstances stipulated by law. Relatively speaking, shareholders are more free about share repurchase/equity repurchase.
For joint-stock companies (listed companies), reduces the company's registered capital, or merges with other companies holding shares of the company, or rewards shares to employees of the company, or shareholders who object to the company's merger or division resolutions made by the shareholders' meeting and ask the company to acquire its shares. In these cases, the company can repurchase shareholders' equity.
For a limited liability company, If the company does not distribute profits to shareholders for five consecutive years, and the company makes continuous profits for five years; or if the company undergoes mergers or divisions, it must transfer the company's main assets; or if the business term stipulated in the company's articles of association expires or other reasons for dissolution stipulated in the articles of association occur, the shareholders' meeting passes a resolution to amend the articles of association to make the company continue. Shareholders who vote against these resolutions can request the company to acquire their equity at a reasonable price. (Provisions on the Company Law)
Regarding share/equity repurchase, the Youfa 365 Enterprise Assistant reminds you:
1. Flexible use of share repurchase. share repurchase has many benefits for listed companies, such as reducing the pressure to distribute dividends , scheduling shares, selling when shares rise, or allocating them to employees after repurchase as incentives.
2. Equity repurchase is risky, and shareholders should carefully distinguish between pros and cons and make decisions.
3. When both parties agree, investors can guarantee their own interests by signing an equity repurchase agreement.
4. Equity repurchase must comply with relevant laws and regulations, and the corresponding procedures must be followed for equity repurchase. shareholder repurchase requires signing an equity transfer agreement, handling industrial and commercial change registration, etc. If the company repurchases, the equity shall be transferred to a third party in a timely manner or the capital reduction and processing shall be handled.
If you need to consult about equity repurchase content, please consult Youfa365 Enterprise Assistant! We will provide you with professional help!
