GAFI Issues Circular Clarifying the
GAFI Issues Circular Clarifying the Rules for Purchasing Treasury Shares
On 13 November 2018, the General Authority for Investment and Free Zones (“GAFI”) issued Circular No. 12 of 2018 with the regulations on purchasing treasury shares (the “Circular”).[1] The Circular does not amend or introduce new provisions but rather clarifies the recently amended system of treasury shares in the Companies Law No. 159 of 1981 as per Law No. 4 of 2018.[2]
Treasury shares are those that a joint stock company buys from its shareholders (i.e., from the overall shares it issues) for different economic reasons such as buying out shareholders wanting to exit, exploiting or supporting the low price of its shares in the market, reducing its capital, distributing said shares to shareholders as free shares, or offering them to company employees and managers as motivation or rewards.
The regulations for treasury shares clarified in the Circular are as follows:
- The volume of the shares bought by the company must not exceed 10% of the total issued shares.
- Securing the approval of the board of directors prior to the purchase.
- Notifying GAFI of the purchase within three business days of completing it.
- Treasury shares, whether through re-selling or distribution among employees or reducing the company capital by their value, must be disposed of within a year from the date of purchase.
- In case the company does not dispose of the treasury shares within a year of their purchase, GAFI warns the company of requiring its extraordinary general assembly to decrease its capital by the value of such shares within a month of the warning or GAFI itself would undertake such procedures of decreasing the company capital and subsequently notifying the commercial registry.
On 13 November 2018, the General Authority for Investment and Free Zones (“GAFI”) issued Circular No. 12 of 2018 with the regulations on purchasing treasury shares (the “Circular”).[1] The Circular does not amend or introduce new provisions but rather clarifies the recently amended system of treasury shares in the Companies Law No. 159 of 1981 as per Law No. 4 of 2018.[2]
Treasury shares are those that a joint stock company buys from its shareholders (i.e., from the overall shares it issues) for different economic reasons such as buying out shareholders wanting to exit, exploiting or supporting the low price of its shares in the market, reducing its capital, distributing said shares to shareholders as free shares, or offering them to company employees and managers as motivation or rewards.
The regulations for treasury shares clarified in the Circular are as follows:
- The volume of the shares bought by the company must not exceed 10% of the total issued shares.
- Securing the approval of the board of directors prior to the purchase.
- Notifying GAFI of the purchase within three business days of completing it.
- Treasury shares, whether through re-selling or distribution among employees or reducing the company capital by their value, must be disposed of within a year from the date of purchase.
- In case the company does not dispose of the treasury shares within a year of their purchase, GAFI warns the company of requiring its extraordinary general assembly to decrease its capital by the value of such shares within a month of the warning or GAFI itself would undertake such procedures of decreasing the company capital and subsequently notifying the commercial registry.