Financial assistance in

law Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vario ...

refers to assistance given by a

company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common p ...

for the purchase of its own

shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...

or the shares of its

holding companies A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...

. In many jurisdictions such assistance is prohibited or restricted by law. For example, all EU member states are required to restrict financial assistance by public companies up to the limit of the company's distributable reserves, although some members go further, for example,

Belgium Belgium, ; french: Belgique ; german: Belgien officially the Kingdom of Belgium, is a country in Northwestern Europe. The country is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeast, France to th ...

Bulgaria Bulgaria (; bg, България, Bǎlgariya), officially the Republic of Bulgaria,, ) is a country in Southeast Europe. It is situated on the eastern flank of the Balkans, and is bordered by Romania to the north, Serbia and North Macedon ...

France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...

, and

The Netherlands ) , anthem = ( en, "William of Nassau") , image_map = , map_caption = , subdivision_type = Sovereign state , subdivision_name = Kingdom of the Netherlands , established_title = Before independence , established_date = Spanish Netherl ...

restrict financial assistance by all companies. Where such assistance is given in breach of applicable law it will render the relevant transaction

void Void may refer to: Science, engineering, and technology * Void (astronomy), the spaces between galaxy filaments that contain no galaxies * Void (composites), a pore that remains unoccupied in a composite material * Void, synonym for vacuum, a ...

and may constitute a

criminal offence In ordinary language, a crime is an unlawful act punishable by a state or other authority. The term ''crime'' does not, in modern criminal law, have any simple and universally accepted definition,Farmer, Lindsay: "Crime, definitions of", in Can ...

Outline

The assistance can be of a variety of different types. The most common type of assistance is a financial

guarantee Guarantee is a legal term more comprehensive and of higher import than either warranty or "security". It most commonly designates a private transaction by means of which one person, to obtain some trust, confidence or credit for another, engages ...

for a loan and/or third party

security Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...

to allow a borrower to borrow money to buy shares which is routinely given (to the extent legally possible) after a

leveraged buyout A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loan ...

in support of the new owner's acquisition debt. It would also normally include a gift or loan from the company or any other act which reduces the net assets of the company to a material extent where this is done for the purpose of the acquisition of shares in itself or its parent. The rationale for such laws is purely economic; it is based upon the premise that if a company supports the purchase of its own shares, it causes a ''de facto'' diminution in the company's value in the hands of other shareholders (who are assumed to continue their ownership following the transaction). Conflicting concerns have also been expressed, namely that such financial assistance artificially inflates a share's price above its market level. Although the authorities are unclear, it seems that financial assistance may also have been a crime under the English

common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipresen ...

prior to its codification by statute. If that is correct, then laws against financial assistance may be much more prevalent than is normally assumed, and would also apply in many of the English speaking

Commonwealth countries The Commonwealth of Nations is a voluntary association of 56 sovereign states. Most of them were British colonies or dependencies of those colonies. No one government in the Commonwealth exercises power over the others, as is the case in a po ...

. Laws against financial assistance are sometimes controversial because of the difficulties they can cause in the context of a

, and some jurisdictions which have enacted them have later repealed them. Some jurisdictions provide for so-called "whitewash" procedures,See, for example,

Companies Act 1985 The Companies Act 1985 (c. 6) is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their d ...

ss155-158 for the procedure in the United Kingdom whereby the shareholders can authorise transactions that would otherwise be void for financial assistance. Most jurisdictions which prohibit financial assistance permit the company to purchase its own shares and hold them in

treasury A treasury is either *A government department related to finance and taxation, a finance ministry. *A place or location where treasure, such as currency or precious items are kept. These can be state or royal property, church treasure or in p ...

, and the company can then issue them again on terms that would have been prohibited if they had sought to provide financial assistance in an equivalent manner for a third party purchase.

Notes

{{Reflist, 2 Corporate law Debt