340 10 Exit of Shareholders
- Member States have a right but not a duty to permit the acquisition of own sha-
res. - The acquisition of own shares requires a resolution by the general meeting au-
thorising the acquisition. The authorisation must determine the terms and con-
ditions of acquisitions. - Members of the board are required to satisfy themselves that those conditions
are respected at the time when each authorised acquisition is effected. - There are limits on the number of shares that the company may acquire.
- The acquisition of shares must not constitute insider trading or market manipu-
lation. In order to comply with provisions based on the Directive on market a-
buse, a company whose shares have been admitted to trading on a regulated
market must use a buy-back programme that complies with the detailed terms
of Community legislation implementing the provisions of the Market Abuse
Directive. Those terms have been set out it in Regulation 2273/2003.
10.2.5 Redeemable Shares
Depending on the jurisdiction and the company, shares may be issued as redeem-
able at the option of the company or the shareholder, or on a certain date. The re-
demption of shares involves a repayment by the company to the shareholder of the
capital subscribed for the shares, in return for which the shares are cancelled. This
is one method of reducing the capital of the company.
Venture capital. Redeemable shares can be useful in venture capital. Parties to
a venture capital transaction know that the venture capital firm prefers to exit the
target after, perhaps, five years. The use of redeemable shares can help to mitigate
risk for the venture capital firm. For example, redeemable shares can make it eas-
ier for the venture capital firm to cash out where the target is not yet ready for an
IPO but has distributable assets.
Circumvention of equivalent treatment. There can be other company law rea-
sons to use redeemable shares. Whereas share buy-backs are generally constrained
by the principle of equivalent treatment of all holders of shares who are in the
same position,^69 the use of redeemable shares can provide an alternative way to
exit the company without infringing that principle, because the holders of redeem-
able shares and holders of other shares are not in the same position.
Tax. The use of redeemable shares can bring tax benefits depending on the ju-
risdiction. Whereas the distribution of profits typically has tax implications, re-
turning shareholders’ capital to shareholders typically is not regarded as the distri-
bution of profits.
Different forms. There can be many different kinds of redeemable shares. One
of the more extreme forms of redeemable shares is a zero-dividend preference
share with a fixed redemption date.
(^69) Article 42 of Directive 77/91/EEC (Second Company Law Directive) and Article 13(1)
of the Transparency Directive.