10.2 Cash Payments by the Company 337Prohibited and permitted share buy-backs. The main rule under the Second Di-
rective is that the company may not acquire its own shares. Member States’ laws
may nevertheless permit the acquisition of own shares on certain conditions.
Member States have a right but not a duty to permit the acquisition of own
shares.^47
Distributable assets, equivalent treatment. The Second Directive only permits
the company to acquire its own shares within the limits of its distributable assets,
unless the company reduces its legal capital.^48
Both the Second Directive and the Transparency Directive provide for the equal
treatment of all holders of shares who are in the same position.^49
Decision-making. There must be a prior resolution by the general meeting to
authorise the board to decide on share buy-backs. The general meeting thus has a
veto right intended to ensure that share buy-backs do not benefit a certain block of
shareholders to the detriment of other shareholders.
The authorisation must determine the terms and conditions of such acquisi-
tions.^50 In particular, the authorisation must contain the maximum number of
shares to be acquired, the duration of the period for which the authorisation is
given, and the maximum and minimum consideration. The duration of the period
for which the authorisation is given is determined by national law but may not ex-
ceed five years after amendments made in 2006.
Those rules are complemented by the rule that prevents the company from us-
ing voting rights attaching to its own shares.^51
Disclosure. Information about share buy-backs must be disclosed to sharehold-
ers in many ways. Shareholders are entitled to information before the general
meeting authorising the share buy-backs.^52 Disclosure to the general meeting is
complemented by ad-hoc disclosure under the Directive on market abuse^53 as well
as by regular disclosure obligations. According to the Second Directive, the an-
nual report must contain detailed information about share buy-backs.^54
Maximum number of shares to be acquired. The maximum number of shares to
be acquired by the company is constrained in four basic ways under the Second
Directive. First, the authorisation must set out the maximum number of shares to
be acquired. Second, only fully paid-up shares may be included in the transaction.
Third, the acquisitions, including previous acquisitions, can only be financed with
assets that can be distributed to shareholders under the Second Directive. Fourth,
Member States may subject acquisitions to the condition that “the nominal value
(^47) Article 19(1) of Directive 77/91/EEC (Second Company Law Directive).
(^48) Article 15 of Directive 77/91/EEC (Second Company Law Directive).
(^49) Articles 19(1) and 42 of Directive 77/91/EEC (Second Company Law Directive); Article
17(1) of Directive 2004/109/EC (Transparency Directive).
(^50) Article 19(1) of Directive 77/91/EEC (Second Company Law Directive) as amended by
Article 1(4) of Directive 2006/68/EC.
(^51) Article 22(1) of Directive 77/91/EEC (Second Company Law Directive).
(^52) Article 23(1) of Directive 77/91/EEC (Second Company Law Directive) as amended by
Article 1(6) of Directive 2006/68/EC.
(^53) Article 6(1) of Directive 2003/6/EC (Directive on market abuse).
(^54) See Article 22(2) of Directive 77/91/EEC (Second Company Law Directive).