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Thus the general rule is that a company is prohibited

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Thus, the general rule is that a company is prohibited from purchasing its own shares (otherwise known as a share repurchase or buy-back), as this wouldreduce theassets available fordistribution to creditors upon its winding up.Effects of contraventionoCompany officer may be guilty of offence –S 76(5) CAoCompany officer may be liable to compensate the company or other persons who suffer lossS 76(6) CAoTransaction is void –S 76A(1)(a) CAExceptions to the general prohibitionbuy-backs underSS 76B – 76G CAoThe prohibition against share buy-backs is no longer absolute; company can repurchase itsshares.oExpressly permitted to do so by constitution –S 76B(1) CAoRationale for change: to provide a more flexible equity structure- a more ‘direct and efficient’means of returning capital to shareholders.Reasons for effecting share buy-backsoFacilitate fund-raising by small business.oReturn excess liquidity to shareholders.oEnhance earnings per share.oProvide “signals” on market value.Methods for permitted share buy-backsoOff-Market Equal Access; An offer to buy the same percentage of shares from all shareholders of the same class on the same terms –S 76C CAoSelective Off-Market Acquisition; Purchase from specified shareholders pursuant to an agreement approved by the company by way of special resolution –S 76D CAoContingent Purchase Contract; Company does not agree to purchase shares outright but only upon the occurrence of certain contingent events –S 76A CAoMarket Acquisition; Company repurchases its own shares from the market. Only appropriate for companies whose shares are listed on the stock exchange –S 76E CA
LGST201 Company LawSafeguard for creditors and shareholdersoCreditors:Company may only repurchase its own shares if the company is solvent –S 76F(1) CAoAgainst abuse or manipulation by company.Mustbeauthorisedbyconstitution.Shareholders’approval.Buy-back is subjected to maximum of20% of issued share capital in any period between 2consecutive AGMs.Disclosure.Capital ReductionA company may opt to return cash to its shareholders by way of capital reduction if it does not have distributable profits and some companies may even take onadditional debt to fund the cash distribution.A company may, however, also opt for capital reduction even if it has distributable profits if it wishes to improve its capital structure or leave distributable reservesintact to maintain a sustainable dividend policy post-capital reduction.Two ways to effect a reduction of capital1.(1)Court Sanction Route
0.Obtaining the requisite shareholder approval, followed by the approval of the High Court.1.Reduction by special resolution subject to court approval –S 78G CA2.

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Corporation, managing director

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