(12) Taking The Advantage Of Tax Benefits
It is one of the most wonderful objectives to initiate shares buyback plan. No one wants to pay excess tax on his/her taxable income. Simultaneously, we try our best efforts to save tax on our earnings as much as possible.
Publicly traded companies are not a different thing in this regard. They also work hard to save money from being taxed by government of concerned countries.
Share repurchase program is a more tax-efficient way to save money as compared to dividend distribution. It is perhaps true for all shareholders as well as for underlying companies themselves.
Generally, dividends are subject to the ordinary tax structure which usually charges tax at higher rate. However, stock buybacks provide an opportunity to defer capital gains tax for investors by not participating in the offer.
Additionally, most of the countries ask companies to pay around 20% dividend distribution tax when paying dividends. On the other hand, stock buybacks when done by taking debt, it lowers the corporate tax bill of underlying company.
It is because interest is a tax deductible expense. Thus, companies prefer to go for stock buybacks to save money from going in the hands of concerned governments.
(13) Rewarding Employees & Management With Stock Rewards & Stock Options
It is one of the most unbeatable objectives to initiate shares buyback plan. Cash is not the only option for companies to provide compensation to its employees & management.
They can also reward their employees & management through a number of different options. Some of the most popular means to reward employees & management include stock rewards, stock options, cash and/or a combination of these things.
Stock buybacks can be a great strategy to maximizing the rewards to its employees & management. Companies often implement share buyback offer to re-issue those shares to employees & management in form of compensation.
This strategy helps them to avoid stake dilution of existing shareholders up to some extent. Similarly, companies who have issued stock options to their employees & management may also prefer to go for shares buyback program.
It is usually done to enhance the share price at the time when employees & management is planning to exercise their stock options. Thus, shares buyback ensures maximizing rewards for employees & management of underlying company.
- Reasons Behind Company’s Buyback Offer: Shutterstock