336 10 Exit of Shareholders
Fifth, subject to the principle of equivalent treatment of shareholders, share
buy-backs can change the shareholder base of the company.
Legal aspects. Share buy-backs raise many legal questions. (a) As share buy-
backs are a way to return funds to shareholders, it is necessary to protect the inter-
ests of creditors. (b) In addition, the equivalent treatment of shareholders can be
an issue. There is a risk that the company decides to pay too much for the shares
of a controlling shareholder, or that share buy-backs are used as a means to with-
draw the shares of minority or unwanted shareholders. (c) Furthermore, when a
listed company buys back its own shares, it must take into account provisions that
prohibit the abuse of inside information and market manipulation.
For those reasons, share buy-backs have been regulated through provisions of
EU company and securities markets law. That regime applies only to public lim-
ited-liability companies (such as the AG, SA, plc, SE). However, Member States’
national company laws tend to contain rules on share buy-backs for private lim-
ited-liability companies (such as the GmbH, S.A.R.L., ltd).
Share buy-backs by companies whose shares have been admitted to trading on
a regulated market are subject to further constraints. In the EU, they are based in
particular on the Directive on market abuse. Member States’ national laws and
stock exchange rules may contain further restrictions.^42
Share buy-backs, reduction in capital, subscription for shares. Share buy-backs
can be distinguished from reductions in legal capital. Share buy-backs can basi-
cally be carried out in two ways: by reducing the company’s legal capital or with-
out doing so.^43 A decision to reduce the company’s legal capital is subject to its
own rules.^44
Share buy-backs can also be distinguished from subscriptions for the com-
pany’s own shares. Whereas the former can be permitted on certain terms, the lat-
ter are prohibited under the Second Company Law Directive.^45
Attribution. The provisions of the Second Directive that apply to the acquisition
of own shares are not very effective in preventing circumvention.
The main rule applies only to the company itself and to a person acting in his
own name but on the company’s behalf. It does not apply to a subsidiary acting in
its own name and on its own behalf. Furthermore, the company itself is, in effect,
not prohibited from giving financial assistance with a view to the acquisition of its
shares by a third party, but the company may give financial assistance only on cer-
tain conditions.^46
(^42) For English law, see section 723 of the Companies 2006, Chapter 12 of the Listing
Rules (LR 12), and section 118A(5)(b) of FSMA 2000: “Behaviour does not amount to
market abuse for the purposes of this Act if ... (b) it conforms with the relevant provi-
sions of Commission Regulation (EC) No 2273/2003 ...”
(^43) See Article 20(1) of Directive 77/91/EEC (Second Company Law Directive).
(^44) Article 30 of Directive 77/91/EEC (Second Company Law Directive).
(^45) Article 18 of Directive 77/91/EEC (Second Company Law Directive). For German law,
see § 56 AktG.
(^46) Article 23(1) of Directive 77/91/EEC (Second Company Law Directive) as amended by
Article 1(6) of Directive 2006/68/EC.