When a company buys back its own shares, cutting outstanding shares to boost value, return surplus cash, or reshape capital structure.
Reduction of Share Capital refers to a process where a company repurchases its shares from the existing shareholders, reducing the total number of outstanding shares. This is typically done to increase the value of remaining shares, distribute surplus cash, or adjust the capital structure.
In a buyback, a company offers to purchase shares at a premium price, usually above the market value, incentivizing shareholders to sell. This results in the reduction of the company's equity capital, leading to an increase in the ownership percentage of remaining shareholders.
Example: A company with 1,000,000 shares decides to buy back 100,000 shares. After the buyback, 900,000 shares remain in circulation, potentially increasing the value of each remaining share.
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