Share repurchase

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Share repurchase, also known as share buyback or stock buyback, is the reacquisition by a company of its own shares.^[1] It represents an alternate and more flexible way (relative to dividends) of returning money to shareholders.^[2] Repurchases allow stockholders to delay taxes which they would have been required to pay on dividends in the year the dividends are paid, to instead pay taxes on the capital gains they receive when they sell the stock, whose price is now proportionally higher because of the smaller number of shares outstanding.

In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding. The company either retires the repurchased shares or keeps them as treasury stock, available for reissuance.

Under U.S. corporate law, there are six primary methods of stock repurchase: open market, private negotiations, repurchase "put" rights, two variants of self-tender repurchase (a fixed price tender offer and a Dutch auction), and accelerate repurchases.^[3] More than 95% of the buyback programs worldwide are through an open-market method,^[2] whereby the company announces the buyback program and then repurchases shares in the open market (stock exchange). In the late 20th and the early 21st century, there was a sharp rise in the volume of share repurchases in the United States. Large share repurchases started later in Europe than in the United States, but are nowadays a common practice around the world.^[4]

U.S. Securities and Exchange Commission (SEC) rule 10b-18 sets requirements for stock repurchase in the United States.^[5] Rule 10b-18 provides a voluntary "safe harbor" from liability for market manipulation under Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934.^[6]