- Pieter Dierckx - Leo Peeters
The criticism on the previous system was primarily focused on the limited time in which the
approval of acquisition of shares remained valid, and also with regard to the limitation of the
number of shares to be acquired.
Due to the modifications made, the technique of acquisition by a company of its own shares becomes more attractive.
More specifically, the technique of acquisition of own shares forms an attractive means to, inter alia, eliminate a liquidity surplus, optimize the financial structure of the company, adapt the control structure, overcome principal-agent problems, and as the case may be, at least in theory, be used as defence against a hostile takeover.
The technique of acquisition of own shares has also an important fiscal dimension, and is often used because of tax reasons.
The rules regarding the acquisition of own shares only apply to public limited liability
companies (NV/SA) private limited liability company (BVBA / S.P.R.L) and the limited partnerships
with a share capital companies (Comm. VA/SCA). The provisions regarding this technique are part of
a broader set of measures relating to the protection of capital.
To proceed to the acquisition of its own sharesby a company, the prior approval of the general meeting of shareholders, whereby the specific terms and conditions of the acquisition must be specified, remains required. However, this rule can be waived if a company acquires its own shares for the purpose of offering the same to its employees, or if the articles of association provide that no resolution of the general meeting of shareholders is required in case the acquisition is used as a defence against a hostile takeover. This right is limited to three years from the date of publication of the incorporation deed or of the amendment of the articles of association.
The general meeting of shareholders or the articles of association shall determine (in advance) the maximum number of shares to be acquired and the minimum and maximum consideration. The general meeting of shareholders authorises the board of directors to proceed with the effective acquisition under the aforementioned conditions. The board of directors, however, is not required to implement this decision immediately. The maximum legal validity period for the approval of the general meeting authorizing the board of directors to proceed with the effective acquisition of the shares is extended from 18 months to 5 years, as from the day of the approval.
The funds spent for the payment of the purchase price of the shares must be profits that would have qualified for distribution as dividends. This is the profit, which may legally be distributed by a company without affecting its financial position.
Once acquired, the company must accrue a reserve unavailable for distribution on its balance sheet, equal to the amount of the shares as registered in the assets as shown on the balance sheet, and this for as long as the company holds the acquired shares in its portfolio.
The company may not unrestrictedly acquire its own shares. It may hold at most 20 % of the authorized share capital of the company. The foregoing is calculated based on the nominal value, or in the absence thereof, the par value of the acquired shares, including those previously acquired by the company and held by it in portfolio.
Subject to certain exceptions, every shareholder should in principle have the opportunity to respond to the company's offer for acquisition of its own shares. One of the exceptions to the obligation of equal treatment of shareholders relates to the companies whose securities have been admitted on a multi trading facility (hereinafter referred to as “MTF”). They will not need to address their offer to all their shareholders, provided that the offered price grants the equal treatment of shareholders in similar conditions.
It should also be noted that listed companies (and companies whose securities are admitted to an MTF) must give prior notice of the proposed transaction to the prudential authorities.
The voting rights vested in shares acquired shall immediately be suspended. The board of directors may also suspend the right to dividends. The company is obliged to comply with the conditions and terms of resale.
Nevertheless, the abovementioned conditions must not be complied with in case one of the following events occurs. These exceptions always involve a transaction in which the acquisition of shares is only the result of the execution of another transaction, namely an acquisition free of charge, an acquisition in terms of capital reduction, an acquisition by general title, an acquisition at a judicial sale or an acquisition in connection with the reduction of cross-shareholdings.
Besides the acquisition of own shares, the law also provides in a technique whereby the company does not acquire its own shares, but only reimburses shares outside the capital reduction. It concerns the capital redemption in which a given part of the profit fixed as may applied for distribution is intended for the repayment at par on such shares as shall be designated by ballot without a reduction of capital of the company. These shares shall be replaced by participation rights. The shareholders shall retain their rights in the company, with the exception of the right to a repayment of their capital contribution (since this was reimbursed).