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Suppose a first company could not buy back its own stock. Hypothetically outlawed. Well, then a second company could be formed for the purpose of buying shares
by RhysU 2y ago
Suppose a first company could not buy back its own stock. Hypothetically outlawed.
Well, then a second company could be formed for the purpose of buying shares of the first.
The first company could buy shares in the second. The first company has now bought back its own stock indirectly.
So, there's no point to banning buybacks. If they are economical but somehow banned, they will be emulated.
Buybacks are usually economical as a way to return dollars to stockholders without incurring the immediate taxation that dividends do. Want fewer buybacks? Lower taxes on dividends. Nothing else will reduce them or, as shown above, their emulation in the face of onerous laws.
- ozgrakkurt 2y agoOr put a lot of tax on buybacks and make it illegal to ping-pong them between companies. When it is a good thing for regular people there are so many issues but it is so easy to cheat for wealthy people and companies. Politicians still not even talking about making it illegal for private equity and similar to buy housing property for example which is insane to me as a regular person
- immibis 2y agoThen someone would show this arrangement to a judge who would order the executive who approved it to be placed in prison. Circular ownership is not allowed in many jurisdictions.
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- RhysU 2y agoIANAL, but https://www.law.cornell.edu/uscode/text/15/80a-20 https://www.law.cornell.edu/uscode/text/15/80a-20 suggests there are structures that would be permissible. For example, something like a pooled company that exists to provide this service for dozens of corporations thereby meeting ownership dilution requirements to avoid triggering circular ownership statutes. Corporate tax lawyers are bright (a well-deserved compliment). Someone would figure out how to hack it. And then the well-intended hypothetical law would just put money into the pockets of lawyers and accountants at the expense of shareholders. It'd sound great on a campaign trail but be stupid in practice.
- immibis 2y ago> Someone would figure out how to hack it. That's the point of the judge.
- RhysU 2y agoThe judge is there to interpret and to apply the law. If there's a hole, there's a hole. And the incentives would be immense to find a legally defensible hole. Think bug bounty on an unfathomable scale.
- immibis 2y agoWhen the law says "companies can't own themselves, even indirectly, or the CEO goes to jail" the judge will be able to see that company A owning company B which owns company A is indirect self-ownership, and send the CEO to jail. No matter how complicated a scheme the CEO comes up with, the judge can likely see through it.
- thrance 2y agoThe point of banning stock buybacks is to prevent companies from destroying themselves by giving everything to shareholders instead of investing, hiring, etc. Lowering taxes on dividends defeats the purpose of a potential ban on buybacks. Dividends were meant to be the only, regulated, mechanism through which a company can directly reward shareholders. I believe a proper law that bans stock buybacks and other similar schemes of redistribution to shareholders would be beneficial to the economy, and even to the shareholders themselves in the long term. I also believe such a law could be enforced with enough political will. It's just a matter of having an agency monitor stock movement, imposing hefty fines to offenders...