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Nope, remember, share buybacks are just a more tax efficient form of returning profits to investors than dividends. As they buy more and more of their stock, t
by mrep 7y ago
Nope, remember, share buybacks are just a more tax efficient form of returning profits to investors than dividends. As they buy more and more of their stock, the remaining shareholders end up owning a larger and larger percentage share of the company.
Taken to the extreme, there would finally be 1 share left held by someone and thus that person would own 100% of the company and be entitled to 100% of the profits from said company. The company cannot just buy the last stock because the stock itself is worth all the cash the company holds and the future profits it will make. Saving up more cash to buy the final stock just raises the price because the stock is entitled to that cash and nobody is going to loan a company enough cash to be worth the expected future profits of said company which makes up the remainder of the shares value.
Funnily enough though, I think they would still do share buybacks by first splitting the stock and then buying a subset of the split stock because then the sole owner would only have to pay taxes on the sale price minus the price he paid for the stock whereas dividends are taxed in their entirety.
- criddell 7y ago> The company cannot cannot just buy the last stock because the stock itself is worth all the cash the company holds and the future profits it will make. The last share is worth whatever the person that holds it is willing to sell it for, right? A share of IBM is worth $136 right now because there are two parties willing to buy/sell a share of IBM at that price. I realize this would never happen in a million years, but could a company exist that is owned by nobody?
- guan 7y agoIt would cause some practical difficulties if the corporation owned all its shares. For example, in the case of a Delaware corporation, shares owned by the corporation itself can’t vote, so it would not be possible to elect board members. Some jurisdictions might have legal limits on how much stock can be bought back as a percentage of the outstanding shares. It’s not that unusual to have entities that essentially own themselves, in the sense that nobody is entitled to the profits and the board or managers elect their own successors. This is the case for foundations and trusts in many countries, usually with some kind of charitable purpose. Some of them even operate businesses. It might be possible for a company to take on some debt, buy out all its shareholders, and reorganize into a charity.
- kgwgk 7y agoI think an easier path to have corporations which are not owned by anyone is to look at cross-holdings. Maybe one could theoretically get to a situation where a group of companies hold shares of each other and completely own themselves in the aggregate? Even if that may not be completely legal one can imagine that given the complexity of the situation one could accidentally end in a forbidden state.