USA Law and Practice Contributed by: Kai Liekefett, Derek Zaba, Ram Sachs and Evan Grosch, Sidley Austin
3.4 Disclosure of Interests Companies generally cannot require the disclosure of a shareholder’s interest. However, securities laws do require disclosure under certain circumstances. For example, institutional investors managing over USD100 million must file Form 13F with the SEC on a quarterly basis, which provides insight into such investors’ stock holdings. Investors must also file a Schedule 13D (active investment) or Schedule 13G (passive investment) if the investor directly or indirect- ly acquires the voting or investment power of over 5% of a voting class of company stock. In addition, shareholders may be required to file a notification under an antitrust statute, the Hart-Scott- Rodino Act of 1976, as amended, to disclose stakes above a certain dollar threshold adjusted annually by the Federal Trade Commission (set at USD126.4 million for 2025). A shareholder may be exempt from such notification requirements if the share purchase is made solely for the purpose of investment, and the total stake remains at or below 10% of the company’s outstanding shares. 4. Cancellation and Buybacks of Shares 4.1 Cancellation Under Delaware law, a company may retire shares that were previously issued if they are not currently out- standing. This may occur after a company acquires its own shares through a repurchase, redemption, conversion or exchange. By default, a retired share may be reissued by the company at a later date. If, however, the company’s certificate of incorporation specifically forbids their reissue, then a certificate identifying such shares must be filed. This filing has the effect of amending the cer- tificate of incorporation to reduce the total number of shares authorised to the retired shares’ class (DGCL § 243). 4.2 Buybacks Delaware public companies are allowed to buy back their shares, but must comply with certain require-
ments to ensure that they do not inadvertently become subject to market manipulation claims. Rule 10b-18, under the Securities Exchange Act of 1934, as amended, provides companies with a safe harbour to purchase shares of common stock. To qualify under the rule, a company’s open-market repurchases must be made by the company itself or by no more than one repurchase agent per day. Additionally, the company cannot repurchase shares at the very beginning or end of a trading day, and repurchases must be made at a price no higher than the highest of either:
• the highest independent bid; or • the previous transaction price.
The company’s daily repurchases must not exceed 25% of the average daily trading volume of the prior four weeks. In addition to the Rule 10b-18 requirements, a com- pany repurchasing its shares may also be subject to an excise tax on such repurchases equal to 1% of the aggregate fair market value of the shares repur- chased.
5. Dividends 5.1 Payments of Dividends
A Delaware corporation is permitted to pay dividends to stockholders out of the company’s surplus, or its net profits, if no surplus exists. As such, if neither a surplus nor net profit exists, a company generally may not pay dividends to stockholders (DGCL § 170). To declare a dividend, the company’s directors must generally fix a record date to determine which stock- holders are entitled to receive such dividend. This date should be within 60 days of the payment of the divi- dend. Moreover, the record date must be a date on or after the day that the company acts to fix such date.
246 CHAMBERS.COM
Powered by FlippingBook