Treasury stock

A separate stock (English treasury stock or treasury share ) is a stock that is in their own possession of the issuing company and is, for example, in the financial statements retrieve as treasury shares.

Background

To distinguish clearly the purchase of own shares ( often referred to as a share buyback ) of the actual share buyback, in which the absolute piece stock of issued shares (and thus the capital stock ) is changed by the simultaneous destruction of shares purchased, which own the purchase stock is not the case. As treasury shares are not entitled to dividend and voting, but the purchase of own shares by the effective action of a capital reduction. This also means that the resale of treasury shares, although no real capital, but a quasi- capital increase carried out by the effects of her, whereby the existing shareholders also be granted subscription rights leads.

Situation in Germany

During the purchase of own shares is permitted for many years in many other countries, it is joint-stock companies in Germany allowed only since 5 March 1998 the Law on Control and Transparency in the corporate sector, to acquire own shares. It should be noted that the respective entity is permitted to purchase a maximum of only 10 % of its own shares and the respective shareholders' meeting must approve the purchase as well.

If there is a capital increase with subscription rights, the own shares of a company are also excluded exactly as the dividend from these. This means that a company which holds treasury shares at an issue of subscription rights not granted the right to subscribe for its own shares advantageous.

Since each sale of treasury shares represents a quasi- capital, treasury shares acquired for resale must in principle also to the existing shareholders ' subscription rights are granted. However, this can be excluded by a decision at the general meeting of a public company, then what is to be noted accordingly in the Articles of Association of the company.

The direct subscription of New Shares at an initial public offering or a recapitalization of the issuer or an affiliated company is not permitted.

Statutory requirements for own shares

• Purchase a maximum of 10 % of own shares, provided that sufficient freely disposable EK is present in the amount of the necessary funding; Article 659, paragraph 1 OR
• Acquired in connection with a transfer restriction registered shares, the maximum limit is 20%. The acquired over 10 % of the AK registered shares must be sold within 2 years or destroyed by capital reduction; Article 569 paragraph 2 OR.
• The voting rights and related rights are suspended; Article 659a paragraph 1 OR
• The Company shall disclose for the treasury shares as the agreed purchase price amount separately as a reserve; Article 659a para 2 OR.
• Information about the acquisition, sale and number of shares held by the Company of its own shares to the financial statements; Article 663 b of Section 10 OR
• Ban the return of contributions Tung; Article 680 OR

Tax consequences for own shares

- Article 20, paragraph 1. C DG, Article 20, paragraph 1 to DBG, Article 20, paragraph 3 DBG - Article 7, Section 1 of the THL, Article 7, paragraph 1 bis StHG, ARt 7b StHG - Article 4a VStG, Article 5, paragraph 1 bis VStG, Article 12, paragraph 1 bis of Article 16 WHT WHT, Article 24a VSTV - FTA circular No. 5

In Switzerland, it is possible that a company may hold its own shares. It is also considered a maximum rate of 10%, which must be in the balance sheet specifically identified.

Repurchase of own shares for the purpose of capital reduction

• Repurchase of owner: income tax on the difference between the sales price and the nominal value (Art. 20 para 1to DBG, 60%). Withholding tax at company: Withholding tax on the difference between the sales price and the nominal value (Article 4a para 1 and Art 12 para 1 WTL ). Reporting procedures can not be claimed, the withholding tax must be strictly passed on (Art. 14 WTL ).
• Repurchase of company: Income tax on the difference between the selling price less profit tax value (book value principle) is controllable investment income in the form of a liquidation dividend. Investment deduction possible if participation > 20%. Withholding tax at company on differential selling price nominal value (Article 4a para 1 and Article 12, Section 1 VStG, Article 4, paragraph 1. VStG b and Article 20, paragraph 1 VSTV ). Reporting procedures can not be claimed, withholding tax must be strictly passed on (Art. 14 WTL ).

Resale of treasury shares within 6 years

• Repurchase of owner: Income tax: no tax consequences generated capital gains final tax-exempt ( Article 16, paragraph 3 DBG ). Gain control of the company: taxable capital gain on the difference repurchase price of its own shares and resale price. Withholding tax at company: no tax consequence since sold within 6 years.
• Repurchase of company: Profit tax: no tax consequences, income tax has already been done at redemption. Income tax at company: taxable capital gain on the difference repurchase price of its own shares and resale price. Withholding tax at company: no tax consequence since sold within 6 years.

No resale of treasury shares within 6 years

• Repurchase of owner: Income tax arrears on tax- free capital gain (nominal value principle; Art. 16 para 3 DBG ) due to the partial liquidation ( Article 20, paragraph 1 bis DBG ). Income tax at the company: no tax consequences. In the tax balance the treasury shares are fully booked at the expense of the relevant capital: Decrease in taxable capital by decreasing AK, decrease premium reserves and decrease retained earnings. Withholding tax at the company (Article 4a para 2 WTL ). Notification is not possible, since the requirement under Article 24a VSTV not met. Pass-through to a private person.
• Repurchase of company: profits tax, no deduction on investment if condition Art. 70 para 4 DBG is not met, the selling rate < 20%. Income tax at the company, no tax consequences, the shares are accounted unchanged in the tax balance sheet, however, the treasury shares are fully booked at the expense of the relevant capital: Decrease in taxable capital by decreasing AK, decrease premium reserves and decrease retained earnings. Withholding tax at the company (Article 4a para 2 WTL ). Notification is possible as the condition laid down in Article 24a VSTV met.

Repurchase of own shares for the issuance of employee shares

Company: If the repurchase of own shares for the purpose of issuing employee shares, is not a direct part of liquidation before. The deadline for the transfer of shares in this case is 12 years (Article 4a para 3 WTL ). The difference between the repurchase price minus the selling price should be recorded as personnel expenses, which is also subject to social security taxes.

Employees: The intrinsic value must be declared on the wage statement. The difference between fair value and the nominal value is subject to income tax and social security contributions.

Reasons for the holding of own shares

• Treasury shares are bought and sold by many companies in the market-making purposes. So unfavorable peaks can be balanced up and down, by resorting to its own share stock.

• Treasury shares are also a good means of defense against hostile takeovers.

• Free liquidity of an enterprise should be invested profitably as possible. Assuming that a company believes in himself, this plant is a good way to increase the yield on cash and cash equivalents.

• Since no dividend is paid on treasury shares generally, the holding of its own shares is a good way to increase earnings per share at constant total volume of dividend.

• Very promising is the holding and trading of own shares to take advantage of a possible knowledge projection. However, since this is insider trading, this type of treasury stock trading is very problematic.

Here, the German Share Institute ( DAI) determined in 1999 that the main reasons for the acquisition of own shares for German firms are both the use of treasury shares as acquisition currency and pay out excess liquidity and optimizing the capital structure.

Reasons against the holding of own shares

• The share capital is an important part of the equity, which covers the liabilities of the company. Binds a company cash in treasury shares, these are no longer available to cover debt available. If a company that holds many own shares, in bankruptcy, then these shares can not be liquefied for debt coverage.

• As a consequence of this fact is true: Treasury shares must be disclosed separately in the balance sheet.
• In the calculation of ratios, the treasury shares must be deducted from equity.