Reply to gede dendy pratama putra
There are several advantages of using the buyback share method. By the funds generated by buyback of shares the company can channelize it into some constructive use, like investing into the business itself. It securitizes the business process to a great extent. Sometimes the company can also resort to the act of buying back of the shares if it is reluctant to issue or renew the shares once again. It is also a very good indication of the positive and promising prospects of the firm which it is likely to undertake in future. Regardless of the economic gains associated with it, the prime motivation that drives a company to buy back the shares is to securitize itself and prevent itself from any untoward incident of being taken over by some other business organization. Out of the many advantages of the buying back of the shares method, I have chosen these particular ones to highlight my response as these are the concerns which the organization is facing and they need to strengthen these areas.
Reply to harsha
The company faces no tax cut as such, and that reflects the profit of the company. The company is in no way to supposed to pay tax to the government in the case of buying back of the shares. And even if the company is supposed to pay taxes to the Australian government, then the rate of it shall be quite low compared to the ones it is supposed to pay overseas. The reduction in the rate of tax which has been proposed to the Australian government shall by no means be benefitting the Australian government, as it shall be losing out on the revenues which is not a good indication for the government. The shareholders however have to bear the brunt of it as they shall be the one to lose out on its share of profits. It is only the company rate tax that is having no effect on itself after the tax-dividend cut.
Forms of share buy backs as per Australian Securities and Investments Commission:
As per Australian Securities and Investment Commission share buyback can be defined as the process of the companies buying back their own shares. The share buyback process in Australia was simplified in 1995 to ensure solvency of companies, protection of shareholders’ interest and disclosing of all relevant information in the market. The ASIC mentions five types of share buybacks in its official website namely, equal access, on-market, employee share scheme, selective buy-back and minimum holding which are previously known as odd lot.
Equal access buy backs take place when companies reasonable rates to buy back the similar percentage of ordinary shares. The shareholders’ agreement between the company, stock broker and individual investors contain clauses for equal access buyback. The companies planning to opt for equal access buybacks require to consent of majority shareholders backed by passing an ordinary resolution. The following are the advantages of equal access to the companies:
Protection of financial liquidity:
The companies often resort to equal access share buyback in the event of death, disability and insolvency of individual shareholders. This allows the companies the buy back shares from shareholders who are no more capable of contributing towards the financial strength of the company. This enables the companies to reissue the stocks to shareholders who are capable of investing towards the capital of the company.
Protection of shareholders’ interests:
Equal access ensure shareholders’ protection and gain stronger acceptance among shareholders. The companies opting for buy back need to give 14 days’ notice to shareholders and creditors by submitting buy back documents with ASIC. The company is bound to give shareholders sufficient time consider the offer of buy-back. The entire process of buy back should take place within a specified time. It can be inferred from the discussion that equal access ensure protection of the right of the shareholders.
The selective buy-back can a defined as the subset of equal access when the companies buy back shares from selected number of shareholders. However, unlike equal access, selective buy-back either requires vote of all stakeholders or a special resolution passed by at least 75 percent of the majority. The shareholders have the option either to sell their shares or vote for the resolution. Selective buy-back shares common advantages with equal access buy-back with some differences:
Protection of shareholders’ interests:
The selective buyback of protects shareholders’ interests because the process of buy-back requires vote for minimum 75 percent stakeholders or consent of all the shareholders. Moreover, the shareholders declining to vote have the option of selling their shareholdings. This means that the process protects interests of the shareholders
The shareholders and the companies mutually gain from this process. First, the shareholders not voting can sell their shares. This means that the companies can remove non- supportive shareholders and retain shareholders aligned to its financial goals as well as policies which also includes capital acquisitions. Similarly, the process enables shareholders divest in the shares they hold unprofitable.
Employee share scheme buy-back:
Employee share scheme buy-back can be defined as the process in which companies can buy back shares owned by employees or directors receiving salaries. The companies require passing an ordinary resolution to opt of employee share scheme buy-back. The following is the advantage of this type of buy-back:
Controlling of misusing of power:
The management of the companies by passing an ordinary board resolution often buys back shares from salaried directors proven misusing their power to influence company operations. Thus, this buy-back more than financial decision is an ethical method to curb misuse of power to senior managers and exploitation of subordinates.
The companies can buy-back their own shares trading on the stock exchanges at market rate. This type of buy-back requires passing of an ordinary resolution and subject to stock exchange regulations.
The companies can by back their unmarketable shares and does not require passing of any resolution. The shares bought back should be cancelled.