Can a company buy itself?

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Tellurius
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Can a company buy itself?

Post by Tellurius »

Would a company, in a special situation, be able to submit an offer to purchase all of its own shares?
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Pegasus_RPG
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Re: Can a company buy itself?

Post by Pegasus_RPG »

I don't even think there needs to be a special situation. A company (or any entity) can always offer to do this. The only question is: is the offer good enough that existing shareholders will take it? (This is why when companies want to achieve this, they offer a decent amount above the current share price.)
123
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Re: Can a company buy itself?

Post by 123 »

Sure. Then it wouldn't have to deal with those pesky stockholders.
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MotoTrojan
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Re: Can a company buy itself?

Post by MotoTrojan »

Sure, Dell did just that.

https://www.forbes.com/sites/conniegugl ... 01bd5f2a9b

Of course in Dell's case they had outside private equity investment, but a smaller company or one with less public ownership could purchase themselves using revenue/reserves.
Philip_Marlowe
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Re: Can a company buy itself?

Post by Philip_Marlowe »

"all of its own shares" is a bit misleading. A company ultimately needs to be owned by someone, either an individual or another entity.

Companies do stock buybacks all the time for a portion of the stock. They can be a great way to help juice the stock price and return funds to investors. Typically a buyback would be set either as an ongoing program (company says it will, over time, buyback up to $X amount of shares when certain triggers are hit) or as a one-time thing (company will buyback $X amount of shares all at once). The effect of the buyback is that each share that remains outstanding effectively owns more of the company.

Alternately, a stockholder or group of stockholders can do a take-private where they offer to purchase all of the public shares and so have the company stop trading publicly (Carl Icahn does this relatively often and this is what happened in the Dell example above).
alex_686
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Re: Can a company buy itself?

Post by alex_686 »

No. Somebody has to own the company. It can’t be the company itself.

Are you talking about a Leverage Buy Out, where managers issue debt to buy out the public shareholders? There is a employee version as well.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
depressed
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Re: Can a company buy itself?

Post by depressed »

I'm going to unilaterally declare this to be the most interesting and creative question ever asked on the Bogleboard--provided that you take the question literally.

I am imagining a company--let's call it Singularity--that has a current market cap of $1 billion, cash reserves of $2B, and perhaps three or four billion of debt. The company decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. I'm not worried about whether this is a likely occurrence: My only interest is in what happens next. I suppose that SING no longer trades (how could it? there's no stock), but Singularity continues doing business, perhaps making Turing machines and selling them at a tidy profit. They continue to pay their employees, pay their taxes, and so on--but now they are a for-profit company with literally no owner. What would their board of directors prioritize? I suppose that would depend on the bylaws. What would an entire planet look like if all companies were of this variety?

I imagine some economist somewhere has made a career studying just such a singular entity.
anoop
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Re: Can a company buy itself?

Post by anoop »

MotoTrojan wrote: Wed Feb 12, 2020 2:50 pm Sure, Dell did just that.

https://www.forbes.com/sites/conniegugl ... 01bd5f2a9b

Of course in Dell's case they had outside private equity investment, but a smaller company or one with less public ownership could purchase themselves using revenue/reserves.
That's not accurate because Michael Dell + Silverlake Partners owned it, not the company itself.
alex_686
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Re: Can a company buy itself?

Post by alex_686 »

depressed wrote: Wed Feb 12, 2020 3:05 pm I'm going to unilaterally declare this to be the most interesting and creative question ever asked on the Bogleboard--provided that you take the question literally.

I am imagining a company--let's call it Singularity--that has a current market cap of $1 billion, cash reserves of $2B, and perhaps three or four billion of debt. The company decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. I'm not worried about whether this is a likely occurrence: My only interest is in what happens next. I suppose that SING no longer trades (how could it? there's no stock), but Singularity continues doing business, perhaps making Turing machines and selling them at a tidy profit. They continue to pay their employees, pay their taxes, and so on--but now they are a for-profit company with literally no owner. What would their board of directors prioritize? I suppose that would depend on the bylaws. What would an entire planet look like if all companies were of this variety?

I imagine some economist somewhere has made a career studying just such a singular entity.
From a accounting standpoint your example is nonsense. The world would have to be very broken if a company’s market cap was below its book value.

On a more fundamental level, who has control? Who elects the board officers? Who gets the cash and profits?

There are examples where a company has liquidated itself and given its monies to its investors. There are examples where for-profit companies have been taken over or given to charities, employees, or its customers (co-op).
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
bryanm
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Re: Can a company buy itself?

Post by bryanm »

depressed wrote: Wed Feb 12, 2020 3:05 pm I am imagining a company [that] decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. ... [N]ow they are a for-profit company with literally no owner.
You are missing that the cash of the company is owned by the shareholders. The last shareholder cannot sell his shares to the company, as he owns the company (and would be selling to himself).
MotoTrojan
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Re: Can a company buy itself?

Post by MotoTrojan »

anoop wrote: Wed Feb 12, 2020 3:11 pm
MotoTrojan wrote: Wed Feb 12, 2020 2:50 pm Sure, Dell did just that.

https://www.forbes.com/sites/conniegugl ... 01bd5f2a9b

Of course in Dell's case they had outside private equity investment, but a smaller company or one with less public ownership could purchase themselves using revenue/reserves.
That's not accurate because Michael Dell + Silverlake Partners owned it, not the company itself.
I see the distinction there. I'm not sure this is probable as it would require the company to have more cash on-hand than the entire free-float market cap at a minimum. Maybe if they had an enormous amount of debt driving the market-cap down they could, but that would be a strange use of cash in the face of that much debt.
MotoTrojan
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Re: Can a company buy itself?

Post by MotoTrojan »

alex_686 wrote: Wed Feb 12, 2020 3:14 pm
From a accounting standpoint your example is nonsense. The world would have to be very broken if a company’s market cap was below its book value.
Doesn't a P/B < 1 mean just that? RZV is a fund which has a P/B of 0.63.

https://www.etf.com/RZV
psteinx
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Re: Can a company buy itself?

Post by psteinx »

There are various ways a company (A) might try to buy back its own shares, or that another another company (B) might leverage A's balance sheet to buy back A's shares.

But let's focus on a straightforward one - that A buys back its own shares, over time, in the marketplace. Lots of companies do this, though of course typically at relatively small percentages - perhaps a low to mid single digit percentage, per year.

Companies VERY rarely have an amount of free cash above their own market cap. When they do, it might be one of a couple scenarions:

1) A company is on the edge of bankruptcy (or in bankruptcy proceedings). It has cash of $100M, debt of $2B, and a market cap of only $50M (because the market realizes the extremely precarious state of the company). I am not a lawyer, but I suspect that if such a company (whose operations are likely bleeding cash) tried to use a big chunk of that cash to buy back its own shares, that the creditors would pitch a fit, including invoking bond covenants and/or trying to force the company into involuntary bankruptcy or the like.

2) A more normal company has immense, fairly liquid assets, and the value of the liquid assets, net of debt and similar claims, exceeds it's market cap. There *IS* a common example of this - closed end funds (CEF), which are similar to mutual funds. They're, IIUC, generally registered investment companies. They invest in stocks and bonds and the like, and they often trade at a discount, with market cap/price perhaps 5-15% below net asset value. Yes, the CEF *could* buy back shares at below NAV/share (thus increasing NAV/share for the remaining shareholders). Sometimes they do this. But as they buy shares back, the share price generally goes up, and if they do it to a significant extent, the discount is likely reduced. In this case, management likely has their own incentives to avoid being too vigorous in buying back shares, because management compensation is likely tied to the overall size of the enterprise.

Such scenarios arose in the past outside of the CEF world (and maybe they still do). Warren Buffett, I believe, devoted some of his early efforts (1950s-1970s) to identifying companies with substantial, fairly liquid investment assets, that nonetheless traded at market values not fully reflective of that. Again, management likely had various reasons not to take action of their own volition (including, I think, that share buybacks weren't as accepted, whether for legal/tax reasons or just general market sentiment). Buffett would buy up a big holding, then goad management to do something (or displace management altogether).
depressed
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Re: Can a company buy itself?

Post by depressed »

bryanm wrote: Wed Feb 12, 2020 3:16 pm
depressed wrote: Wed Feb 12, 2020 3:05 pm I am imagining a company decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. ... [N]ow they are a for-profit company with literally no owner.
You are missing that the cash of the company is owned by the shareholders. The last shareholder cannot sell his shares to the company, as he owns the company (and would be selling to himself).
No, the company makes an offer for all shares; shareholders have until 11:59pm on June 6, 2066, PDT, to accept the offer, and all shareholders accept the offer. All shares are then sent in and checks are cut to the ex-shareholders. But, as I said, I'm not interested in these kind of obstacles. My interest lies only in the what-next aspect of the entity that is thereby created. Think of it as a thought experiment if you prefer, and start the experiment after all shares have been bought back.
bryanm
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Re: Can a company buy itself?

Post by bryanm »

depressed wrote: Wed Feb 12, 2020 3:34 pm
bryanm wrote: Wed Feb 12, 2020 3:16 pm
depressed wrote: Wed Feb 12, 2020 3:05 pm I am imagining a company decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. ... [N]ow they are a for-profit company with literally no owner.
You are missing that the cash of the company is owned by the shareholders. The last shareholder cannot sell his shares to the company, as he owns the company (and would be selling to himself).
No, the company makes an offer for all shares; shareholders have until 11:59pm on June 6, 2066, PDT, to accept the offer, and all shareholders accept the offer. All shares are then sent in and checks are cut to the ex-shareholders. But, as I said, I'm not interested in these kind of obstacles. My interest lies only in the what-next aspect of the entity that is thereby created. Think of it as a thought experiment if you prefer, and start the experiment after all shares have been bought back.
I'm fine with your thought experiment, but you should recognize that it's truly not possible. Despite some sensationalist reporting, companies are still not "people" in any legal jurisdiction that I'm aware of. Saying that a company "offers to buy back shares" is in fact a legal shorthand for one set of shareholders offering to buy shares of another set. Assuming there is only one shareholder, the sale (a contract) is invalid due to lack of consideration. The shareholder cannot give up his rights (ownership) in exchange for cash, because he already owns that cash.

If you want to presume the impossible and go from there, I'm a-okay with that. (Science fiction has been doing it for ages!) But you should recognize that you are, in fact, presuming the impossible.

(Edit: "If you were a hot dog, and you were starving, would you eat yourself?")
Last edited by bryanm on Wed Feb 12, 2020 3:52 pm, edited 1 time in total.
anoop
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Re: Can a company buy itself?

Post by anoop »

It looks like the answer is “no” because laws would prevent the company from acquiring more than a certain % of its total market cap.
https://en.wikipedia.org/wiki/Treasury_ ... sury_stock

In practice, long before something like this is viable the company would either be acquired or be under heavy pressure from shareholders to return the left over cash and cease operations (because by this time they are usually in cash burn mode).
Last edited by anoop on Wed Feb 12, 2020 3:54 pm, edited 1 time in total.
123
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Re: Can a company buy itself?

Post by 123 »

depressed wrote: Wed Feb 12, 2020 3:34 pm ...My interest lies only in the what-next aspect of the entity that is thereby created. Think of it as a thought experiment if you prefer, and start the experiment after all shares have been bought back.
Assuming indeed that the company acquired all it's own shares it would no longer have to (or be able to) distribute profits. It would then become a non-profit (probably subject to some IRS rules). According as a non-profit the executives and corporate officers often do very well, the organization has to spend its money somewhere. Possible real world situation would could possibly be a hospital that may have started out by a group of doctors that always lost money so it went non-profit. Sometimes corporate executives could manipulate company operations to trigger sales of company components at bargain prices (Sears comes to mind). The end result of bankruptcy could be much the same as buying all the shares back, the entity has little or no outside influencers (like stockholders).
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cornix
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Re: Can a company buy itself?

Post by cornix »

A company which "owns itself" might behave similarly to cooperative or certain non-profit companies. Specifically, you could compare this situation to "non-profit" hospitals, which behave similarly to for-profit corporations and may even have for-profit insurance subsidiaries. Consider also mutual savings banks. Although they are nominally owned by the depositors, in practice depositors may not have any shareholder-type privileges. All of these situations can involve self-perpetuating boards of directors.
Caduceus
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Re: Can a company buy itself?

Post by Caduceus »

alex_686 wrote: Wed Feb 12, 2020 3:14 pm
From a accounting standpoint your example is nonsense. The world would have to be very broken if a company’s market cap was below its book value.
Lots of companies trade below their book value. There are plenty, as we speak, that are trading at tiny fractions of their book value.
Caduceus
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Re: Can a company buy itself?

Post by Caduceus »

Haha, this sounds like a trick question.

I would say the answer is probably No. Let's say a company retires all shares except one share. Someone owns that one share. He's now the sole owner of the company. Could the company retire that last share in a stock re-purchase from its single owner? :P
depressed
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Re: Can a company buy itself?

Post by depressed »

bryanm wrote: Wed Feb 12, 2020 3:41 pm
depressed wrote: Wed Feb 12, 2020 3:34 pm
bryanm wrote: Wed Feb 12, 2020 3:16 pm
depressed wrote: Wed Feb 12, 2020 3:05 pm I am imagining a company decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. ... [N]ow they are a for-profit company with literally no owner.
You are missing that the cash of the company is owned by the shareholders. The last shareholder cannot sell his shares to the company, as he owns the company (and would be selling to himself).
No, the company makes an offer for all shares; shareholders have until 11:59pm on June 6, 2066, PDT, to accept the offer, and all shareholders accept the offer. All shares are then sent in and checks are cut to the ex-shareholders. But, as I said, I'm not interested in these kind of obstacles. My interest lies only in the what-next aspect of the entity that is thereby created. Think of it as a thought experiment if you prefer, and start the experiment after all shares have been bought back.
I'm fine with your thought experiment, but you should recognize that it's truly not possible. Despite some sensationalist reporting, companies are still not "people" in any legal jurisdiction that I'm aware of. Saying that a company "offers to buy back shares" is in fact a legal shorthand for one set of shareholders offering to buy shares of another set. Assuming there is only one shareholder, the sale (a contract) is invalid due to lack of consideration. The shareholder cannot give up his rights (ownership) in exchange for cash, because he already owns that cash.

If you want to presume the impossible and go from there, I'm a-okay with that. (Science fiction has been doing it for ages!) But you should recognize that you are, in fact, presuming the impossible.

(Edit: "If you were a hot dog, and you were starving, would you eat yourself?")
Okay, I'll give in and admit that this is legally impossible under current law. But from a logical standpoint, I don't see any problem with writing a law that allows for-profit companies that have no owners. The structure could be much the same as non-profits under current law, except that each year the company would have (and retain) a profit that it pays taxes on, just like any other company. And although there may be a legal obstacle to creating such entities, new laws could allow for such an entity to come into existence in much the same way that a for-profit company can currently become a non-profit.

And I'll also agree with you that it begins to inch into the realm of social science fiction. I do enjoy the subgenre of that field which explores the legal system.
HootingSloth
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Re: Can a company buy itself?

Post by HootingSloth »

depressed wrote: Wed Feb 12, 2020 4:54 pm
bryanm wrote: Wed Feb 12, 2020 3:41 pm
depressed wrote: Wed Feb 12, 2020 3:34 pm
bryanm wrote: Wed Feb 12, 2020 3:16 pm
depressed wrote: Wed Feb 12, 2020 3:05 pm I am imagining a company decides to use its cash, or some of it, to buy back all of its shares--and it succeeds in doing so. ... [N]ow they are a for-profit company with literally no owner.
You are missing that the cash of the company is owned by the shareholders. The last shareholder cannot sell his shares to the company, as he owns the company (and would be selling to himself).
No, the company makes an offer for all shares; shareholders have until 11:59pm on June 6, 2066, PDT, to accept the offer, and all shareholders accept the offer. All shares are then sent in and checks are cut to the ex-shareholders. But, as I said, I'm not interested in these kind of obstacles. My interest lies only in the what-next aspect of the entity that is thereby created. Think of it as a thought experiment if you prefer, and start the experiment after all shares have been bought back.
I'm fine with your thought experiment, but you should recognize that it's truly not possible. Despite some sensationalist reporting, companies are still not "people" in any legal jurisdiction that I'm aware of. Saying that a company "offers to buy back shares" is in fact a legal shorthand for one set of shareholders offering to buy shares of another set. Assuming there is only one shareholder, the sale (a contract) is invalid due to lack of consideration. The shareholder cannot give up his rights (ownership) in exchange for cash, because he already owns that cash.

If you want to presume the impossible and go from there, I'm a-okay with that. (Science fiction has been doing it for ages!) But you should recognize that you are, in fact, presuming the impossible.

(Edit: "If you were a hot dog, and you were starving, would you eat yourself?")
Okay, I'll give in and admit that this is legally impossible under current law. But from a logical standpoint, I don't see any problem with writing a law that allows for-profit companies that have no owners. The structure could be much the same as non-profits under current law, except that each year the company would have (and retain) a profit that it pays taxes on, just like any other company. And although there may be a legal obstacle to creating such entities, new laws could allow for such an entity to come into existence in much the same way that a for-profit company can currently become a non-profit.

And I'll also agree with you that it begins to inch into the realm of social science fiction. I do enjoy the subgenre of that field which explores the legal system.
This kind of legal entity already exists and is just called a taxable nonprofit corporation (or "nonstock" corporation in Delaware). A nonprofit corporation is not automatically tax-exempt. It needs to meet the requirements of one of the categories enumerated in the Internal Revenue Code (501(c)(2) through 501(c)(29)) to be exempt from federal income tax. Nonprofit corporations are not prohibited from earning or retaining a profit. They simply do not have shareholders to which profits are distributed. Some nonprofit corporations have members with voting rights similar to those of shareholders (but no rights to distributions). Others have "self-perpetuating" Boards, and are just controlled by the members of the Board of Directors.
depressed
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Re: Can a company buy itself?

Post by depressed »

HootingSloth wrote: Wed Feb 12, 2020 5:01 pm
This kind of legal entity already exists and is just called a taxable nonprofit corporation (or "nonstock" corporation in Delaware). A nonprofit corporation is not automatically tax-exempt. It needs to meet the requirements of one of the categories enumerated in the Internal Revenue Code (501(c)(2) through 501(c)(29)) to be exempt from federal income tax. Nonprofit corporations are not prohibited from earning or retaining a profit. They simply do not have shareholders to which profits are distributed. Some nonprofit corporations have members with voting rights similar to those of shareholders (but no rights to distributions). Others have "self-perpetuating" Boards, and are just controlled by the members of the Board of Directors.
Very interesting. Gracias!
bryanm
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Re: Can a company buy itself?

Post by bryanm »

Yep, the logic above doesn't apply to non-profits, because there is no "sale." Assets are instead gifted. Interesting to learn that!
bsteiner
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Re: Can a company buy itself?

Post by bsteiner »

It could buy all but one share.
JMitchell2020
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Re: Can a company buy itself?

Post by JMitchell2020 »

anoop wrote: Wed Feb 12, 2020 3:51 pm It looks like the answer is “no” because laws would prevent the company from acquiring more than a certain % of its total market cap.
https://en.wikipedia.org/wiki/Treasury_ ... sury_stock

In practice, long before something like this is viable the company would either be acquired or be under heavy pressure from shareholders to return the left over cash and cease operations (because by this time they are usually in cash burn mode).
That Wikipedia article doesn’t supply any specific regulatory reference that supports its claim “A company cannot own itself.” If anyone can track down such reference it would be helpful because I remain unconvinced by its mere assertion. In any case, in the U.S. the SEC does not appear to regulate this aspect of privately held corporations. I believe with respect to intrastate holdings of unlisted and privately held corporations only the laws of the incorporation state are applicable.

In any case consider this scenario:
A corporation can own 100% of the outstanding stock of another corporation. So if I as sole owner of all shares of unlisted privately held corporation X have it buy all the shares I have of corporation Y, that would be legal. Likewise as owner of X and president of corporation Y (which I can be, as corporate management is distinct from corporate ownership) I can have corporation Y buy all my shares of corporation X. Per the X and Y bylaws I would continue to manage both corporations, just not own them. They now own each other, sans human ownership. (I don’t think the extra corporation is needed to make the case, but for those who can’t digest the idea of a corporation owning itself, I throw it out to give you headaches. :wink: )
depressed
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Re: Can a company buy itself?

Post by depressed »

JMitchell2020 wrote: Wed Feb 12, 2020 6:17 pm
anoop wrote: Wed Feb 12, 2020 3:51 pm It looks like the answer is “no” because laws would prevent the company from acquiring more than a certain % of its total market cap.
https://en.wikipedia.org/wiki/Treasury_ ... sury_stock

In practice, long before something like this is viable the company would either be acquired or be under heavy pressure from shareholders to return the left over cash and cease operations (because by this time they are usually in cash burn mode).
That Wikipedia article doesn’t supply any specific regulatory reference that supports its claim “A company cannot own itself.” If anyone can track down such reference it would be helpful because I remain unconvinced by its mere assertion. In any case, in the U.S. the SEC does not appear to regulate this aspect of privately held corporations. I believe with respect to intrastate holdings of unlisted and privately held corporations only the laws of the incorporation state are applicable.

In any case consider this scenario:
A corporation can own 100% of the outstanding stock of another corporation. So if I as sole owner of all shares of unlisted privately held corporation X have it buy all the shares I have of corporation Y, that would be legal. Likewise as owner of X and president of corporation Y (which I can be, as corporate management is distinct from corporate ownership) I can have corporation Y buy all my shares of corporation X. Per the X and Y bylaws I would continue to manage both corporations, just not own them. They now own each other, sans human ownership. (I don’t think the extra corporation is needed to make the case, but for those who can’t digest the idea of a corporation owning itself, I throw it out to give you headaches. :wink: )
I like the way you think. I think a merger is in their future.
Topic Author
Tellurius
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Re: Can a company buy itself?

Post by Tellurius »

For those that replied about a company buying itself using its own cash, that was what I was asking about (I wasn't asking about leveraged buyouts).

From what I understand, in the dark days of the 1930's, companies regularly traded below net book value and not too rarely traded below net cash, due to the lack of investment education and dearth of professionally managed money.

The argument that the contract to buy the last share wouldn't be valid due to lack of consideration, seems appealing.
La nuit semblait profonde. L'hiver interminable.
Topic Author
Tellurius
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Re: Can a company buy itself?

Post by Tellurius »

JMitchell2020 wrote: Wed Feb 12, 2020 6:17 pm
anoop wrote: Wed Feb 12, 2020 3:51 pm It looks like the answer is “no” because laws would prevent the company from acquiring more than a certain % of its total market cap.
https://en.wikipedia.org/wiki/Treasury_ ... sury_stock

In practice, long before something like this is viable the company would either be acquired or be under heavy pressure from shareholders to return the left over cash and cease operations (because by this time they are usually in cash burn mode).
That Wikipedia article doesn’t supply any specific regulatory reference that supports its claim “A company cannot own itself.” If anyone can track down such reference it would be helpful because I remain unconvinced by its mere assertion. In any case, in the U.S. the SEC does not appear to regulate this aspect of privately held corporations. I believe with respect to intrastate holdings of unlisted and privately held corporations only the laws of the incorporation state are applicable.

In any case consider this scenario:
A corporation can own 100% of the outstanding stock of another corporation. So if I as sole owner of all shares of unlisted privately held corporation X have it buy all the shares I have of corporation Y, that would be legal. Likewise as owner of X and president of corporation Y (which I can be, as corporate management is distinct from corporate ownership) I can have corporation Y buy all my shares of corporation X. Per the X and Y bylaws I would continue to manage both corporations, just not own them. They now own each other, sans human ownership. (I don’t think the extra corporation is needed to make the case, but for those who can’t digest the idea of a corporation owning itself, I throw it out to give you headaches. :wink: )
Impressive. Why would this be impossible?
La nuit semblait profonde. L'hiver interminable.
bryanm
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Re: Can a company buy itself?

Post by bryanm »

Tellurius wrote: Thu Feb 13, 2020 10:58 am
JMitchell2020 wrote: Wed Feb 12, 2020 6:17 pm
anoop wrote: Wed Feb 12, 2020 3:51 pm It looks like the answer is “no” because laws would prevent the company from acquiring more than a certain % of its total market cap.
https://en.wikipedia.org/wiki/Treasury_ ... sury_stock

In practice, long before something like this is viable the company would either be acquired or be under heavy pressure from shareholders to return the left over cash and cease operations (because by this time they are usually in cash burn mode).
That Wikipedia article doesn’t supply any specific regulatory reference that supports its claim “A company cannot own itself.” If anyone can track down such reference it would be helpful because I remain unconvinced by its mere assertion. In any case, in the U.S. the SEC does not appear to regulate this aspect of privately held corporations. I believe with respect to intrastate holdings of unlisted and privately held corporations only the laws of the incorporation state are applicable.

In any case consider this scenario:
A corporation can own 100% of the outstanding stock of another corporation. So if I as sole owner of all shares of unlisted privately held corporation X have it buy all the shares I have of corporation Y, that would be legal. Likewise as owner of X and president of corporation Y (which I can be, as corporate management is distinct from corporate ownership) I can have corporation Y buy all my shares of corporation X. Per the X and Y bylaws I would continue to manage both corporations, just not own them. They now own each other, sans human ownership. (I don’t think the extra corporation is needed to make the case, but for those who can’t digest the idea of a corporation owning itself, I throw it out to give you headaches. :wink: )
Impressive. Why would this be impossible?
It's a question of contract law. Y-Co cannot buy all shares of X-Co, because X-Co already owns 100% of Y-Co. Effectively, Y-Co cannot give to X-Co anything that X-Co does not already have. There is therefore no "consideration" and no sale has occurred. (As discussed above, this doesn't apply if we make one of the companies a non-profit.)
PluckyDucky
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Joined: Tue Jan 15, 2019 8:29 pm

Re: Can a company buy itself?

Post by PluckyDucky »

Is that legally possible?

Who is the owner? A company that owns it self should cease to exist, just like when a trustee and beneficiary are the same, the trust merges.

https://en.wikipedia.org/wiki/Merger_do ... trust_law)
PluckyDucky
Posts: 262
Joined: Tue Jan 15, 2019 8:29 pm

Re: Can a company buy itself?

Post by PluckyDucky »

depressed wrote: Wed Feb 12, 2020 4:54 pm Okay, I'll give in and admit that this is legally impossible under current law. But from a logical standpoint, I don't see any problem with writing a law that allows for-profit companies that have no owners. The structure could be much the same as non-profits under current law, except that each year the company would have (and retain) a profit that it pays taxes on, just like any other company. And although there may be a legal obstacle to creating such entities, new laws could allow for such an entity to come into existence in much the same way that a for-profit company can currently become a non-profit.

And I'll also agree with you that it begins to inch into the realm of social science fiction. I do enjoy the subgenre of that field which explores the legal system.
Non-stock corporations already exist.

The owners are the members. It doesn't mean there's no owners.
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