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An Introduction to Company Buy-Backs and How They Work

Company buy-backs have become increasingly common. While some companies issue dividends to reward shareholders with a portion of their profits, others buy back some of their shares. If you own a publicly traded company, you might be wondering whether a company buy-back is a smart decision. To learn more about company buy-backs and how they work, keep reading.

An Introduction to Company Buy-Backs and How They Work

What Is a Company Buy-Back?

Also known as a share repurchase, a company buy-back is exactly what it sounds like: the repurchase or buy-back of some of a company’s stock shares.

Stock shares represent ownership in companies. When companies go public, they sell an ownership stake to investors. Some companies may sell a 10% ownership stake, whereas others may sell a 50% or more ownership stake. Regardless, the stock shares sold to investors represent ownership in the publicly traded company. If the company wants to reduce the ownership stake held by outside investors, it may initiate a company buy-back.

How a Company Buy-Back Works

Company buy-backs involve the repurchase of stock shares held by investors or private equity funds. They can occur with either private or publicly traded companies. If a company is privately traded, it may repurchase some of its stock shares from a private equity fund. If a company is publicly traded, on the other hand, it may repurchase some of its stock shares off the stock market.

Advantages of a Company Buy-Back

Companies often sell stock shares to raise capital. It’s the basis on which equity financing is founded. There’s debt financing, and there’s equity financing. The former involves borrowing money from a lender, which of course must be repaid to the lender — typically with interest and other associated fees. Equity financing, conversely, involves the sale of stock shares. Companies can secure equity financing by selling stock shares to investors.

After securing equity financing and using that capital to improve their business operations, some companies may want to reclaim their stock shares. A company buy-back offers a solution. It allows companies to reduce outside investors’ ownership stake. When a company repurchases some of its stock shares, it will reduce the ownership stake held by outside investors.

In Conclusion

A company buy-back is a way for companies to reclaim ownership after securing equity financing. It’s also known as a share repurchase. Companies can repurchase some of their shares to reduce the ownership stake held by outside investors.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • November 26, 2021


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