It is always good for folks to understand Securities Law...to avoid mistaken assumptions.
A “share buyback” is just an alternative method for distributing company assets or earnings to common shareholders. Other methods include a cash dividend or share dividend.
During a buyback, a company uses its equity to distribute cash payouts to investors.
It’s not rocket science.
That’s why there’s stipulations involved, such as the balance sheet test and the insolvency test.
Companies can’t just go around making decisions that could ultimately have a negative impact on priority debt holders who have superior rights to claims, such as creditors and owners of Preferred Stock.
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