Financial assistance in law refers to assistance given by a company for the purchase of its own shares or the shares of its holding companies . In many jurisdictions such assistance is prohibited or restricted by law. For example, all EU member states are required to restrict financial assistance by public companies up to the limit of the company's distributable reserves, although some members go further, for example, Belgium , Bulgaria , France , and The Netherlands restrict financial assistance by all companies. Where such assistance is given in breach of applicable law it will render the relevant transaction void and may constitute a criminal offence .
19-619: (Redirected from Financial Assistance ) Financial assistance or financial aid can refer to: Financial assistance (share purchase) , assistance given by a company for the purchase of its shares or those of its holding companies Funding of science , the provision of financing for scientific research projects Welfare , financial aid primarily by governmental institutions or charitable organizations to individuals in need Subsidy Student financial aid , funding intended to help students pay educational expenses Bailout , financial support to
38-428: A company buying back its stock should have no effect on its price per share valuation. If the market fairly prices a company's shares at $ 50/share, and the company buys back 100 shares for $ 5,000, it now has $ 5,000 less cash but there are 100 fewer shares outstanding; the net effect should be that the underlying value of each share is unchanged. Additionally, buying back shares will improve price/earnings ratios due to
57-426: A company or country which faces serious financial difficulty Bursary , a monetary award made by an institution to individuals or groups of people who cannot afford to pay full fees Topics referred to by the same term [REDACTED] This disambiguation page lists articles associated with the title Financial assistance . If an internal link led you here, you may wish to change the link to point directly to
76-424: A company to buy back its own stock is to reward holders of stock options . Call option holders are hurt by dividend payments, since, typically, they are not eligible to receive them. A share buyback program may increase the value of remaining shares (if the buyback is executed when shares are under-priced); if so, call option holders benefit. A dividend payment short term always decreases the value of shares after
95-409: A variety of different types. The most common type of assistance is a financial guarantee for a loan and/or third party security to allow a borrower to borrow money to buy shares which is routinely given (to the extent legally possible) after a leveraged buyout in support of the new owner's acquisition debt. It would also normally include a gift or loan from the company or any other act which reduces
114-553: Is a company's own share that has been bought back after having been issued and fully paid. The possession of treasury shares does not give the company the right to vote, to exercise preemptive rights as a shareholder, to receive cash dividends, or to receive assets on company liquidation. Treasury shares are essentially the same as unissued capital, which is not classified as an asset on the balance sheet, as an asset should have probable future economic benefits. Treasury shares simply reduce ordinary share capital. In an efficient market ,
133-434: Is credited. However, when the treasury stock is resold back to the market the entry in the books will be the same as the cost method. In either method, any transaction involving treasury stock cannot increase the amount of retained earnings . If the treasury stock is sold for more than cost, then the paid-in capital treasury stock is the account that is increased, not retained earnings . In auditing financial statements , it
152-412: Is listed under shareholders' equity as a negative number. It is commonly called "treasury stock" or "equity reduction". That is, treasury stock is a contra account to shareholders' equity. One way of accounting for treasury stock is with the cost method. In this method, the paid-in capital account is reduced in the balance sheet when the treasury stock is bought. When the treasury stock is sold back on
171-607: Is normally assumed, and would also apply in many of the English speaking Commonwealth countries . Laws against financial assistance are sometimes controversial because of the difficulties they can cause in the context of a leveraged buyout , and some jurisdictions which have enacted them have later repealed them. Some jurisdictions provide for so-called "whitewash" procedures, whereby the shareholders can authorise transactions that would otherwise be void for financial assistance. Most jurisdictions which prohibit financial assistance permit
190-501: Is to protect the company against a takeover threat. The United Kingdom equivalent of treasury stock as used in the United States is treasury share . Treasury stocks in the UK refers to government bonds or gilts . When shares are repurchased, they may either be canceled or held for reissue. If not canceled, such shares are referred to as treasury shares. Technically, a repurchased share
209-422: The company to purchase its own shares and hold them in treasury , and the company can then issue them again on terms that would have been prohibited if they had sought to provide financial assistance in an equivalent manner for a third party purchase. Treasury stock A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on
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#1732845382021228-412: The intended article. Retrieved from " https://en.wikipedia.org/w/index.php?title=Financial_assistance&oldid=1135693236 " Categories : Disambiguation pages Assistance Hidden categories: Short description is different from Wikidata All article disambiguation pages All disambiguation pages Financial assistance (share purchase) The assistance can be of
247-426: The net assets of the company to a material extent where this is done for the purpose of the acquisition of shares in itself or its parent. The rationale for such laws is purely economic; it is based upon the premise that if a company supports the purchase of its own shares, it causes a de facto diminution in the company's value in the hands of other shareholders (who are assumed to continue their ownership following
266-503: The open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficient method to put cash into shareholders' hands, rather than paying dividends , in jurisdictions that treat capital gains more favorably. Sometimes, companies repurchase their stock when they feel that it is undervalued on the open market. Other times, companies repurchase their stock to reduce dilution from incentive compensation plans for employees. Another reason for stock repurchase
285-409: The open market, the paid-in capital is either debited or credited if it is sold for less or more than the initial cost respectively. Another common way for accounting for treasury stock is the par value method. In the par value method, when the stock is purchased back from the market, the books will reflect the action as a retirement of the shares. Therefore, common stock is debited and treasury stock
304-542: The payment, so, for stocks with regularly scheduled dividends, on the day shares go ex-dividend, call option holders always lose whereas put option holders benefit. This does not apply to unscheduled (special) dividends since the strike prices of options are typically adjusted to reflect the amount of the special dividend. Finally, if the sellers into a corporate buyback are actually the call option holders themselves, they may directly benefit from temporary unrealistically favorable pricing. The company can either retire (cancel)
323-454: The reduced number of shares (and unchanged earnings) and improve earnings per share ratios due to fewer shares outstanding (and unchanged earnings). If the market is not efficient , the company's shares may be underpriced. In that case a company can benefit its other shareholders by buying back shares. If a company's shares are overpriced, then a company is actually hurting its remaining shareholders by buying back stock. One other reason for
342-404: The shares (however, retired shares are not listed as treasury stock on the company's financial statements) or hold the shares for later resale. Buying back stock reduces the number of outstanding shares. Accompanying the decrease in the number of shares outstanding is a reduction in company assets, in particular, cash assets, which are used to buy back shares. On the balance sheet , treasury stock
361-428: The transaction). Conflicting concerns have also been expressed, namely that such financial assistance artificially inflates a share's price above its market level. Although the authorities are unclear, it seems that financial assistance may also have been a crime under the English common law prior to its codification by statute. If that is correct, then laws against financial assistance may be much more prevalent than
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