A share is a unit of capital as defined in the AvaTrade Review. Different companies sell these shares to individuals to assist them to raise capital. However, today some companies resort to buying back their own shares. The latter process comes with its own advantages as well as disadvantages. The prevalent disadvantage is that it will reduce the shareholder earnings. Therefore, it will reduce the dividends to be shared to the company. In this article, I will provide you with some of the conditions needed to be fulfilled perform buying back shares.
The first condition is that the process must be authorised by some of the clauses listed in the article of association document. You should know that the article of association is a document that provides a relationship between a business and its outsiders. The second condition is that a company should be able to deploy borrowed funds to use in the process. Nevertheless, the good news is that today, a company can be able to buy back shares through its free reserves.
The next condition that must be fulfilled is that a company should be able to only use 25% of its shares in carrying out the shares repurchase program. You should know that in the process where the buyback of a company is less than 10%, it is mandatory for the company to authorise the transaction by passing through a board.
Other limitation that comes with share purchase is that companies will be unable to repurchase back their shares as well as securities. The latter is point noted in IG Review site. They will be unable to do so through an individual negotiated deals, or private arrangement. Not to also mention that it will be impossible for a company to buy back the shares through the stock exchange market.