Abstract

Share purchase and redemption schemes are highly popular among Polish public companies. Share buy-backs stabilize the stock price, offer an alternative to the distribution of dividends and can also serve as an effective tool to protect the company against a hostile takeover. However, redemption of public company shares gives rise to some legal controversies. They relate both to the redemption procedure and the sources of its financing.

1) Under the so-called “voluntary redemption” procedure, the capital market rules and the accepted market practice require a public company to pay the share price (the redemption fee) immediately after the shares have been acquired by the company. However, redemption is subject to the legal capital (share capital) rules. Therefore, an immediate payment of the share price is permitted only if the price can be financed exclusively with company’s earnings which could otherwise be distributed as_a_dividend. No earnings render the entire process of redemption impossible.

2) A controversy has been raised in practice whether the redemption of shares can be financed with the agio (capital surplus). An analysis of the statutory rules leads to the conclusion that the entire agio is excluded from distribution to the shareholders in any form. The agio can be allocated only for two purposes: covering company’s losses or increase of the share capital with company’s funds. The rule is excessively strict: the shareholders should be allowed to receive a portion of the agio in proportion to their shareholdings, subject to redemption.