Increase the market price of its common stock. A company may implement a stock buyback when management believes that the market has discounted its share price. When a company announces a buyback, there is frequently an increase in market activity and an increase in the market price for the shares.

Return invested capital. Investors view issuer repurchases as an appropriate method of returning cash to stockholders. A stock buyback is a tax-efficient alternative to declaring a dividend. The cash investors receive for the repurchase of their shares is treated as a capital gain rather than ordinary income subject to a higher tax rate. In addition, a repurchase program allows the company to use its excess cash when more favorable investments are unavailable.

Reduce dilution. A company can use stock repurchases to offset the dilutive impact of stock options and restricted stock granted under employee equity incentive compensation plans.

Improve per share earnings. On completion of the buyback there will be fewer shares outstanding, which causes an increase in earnings per share.

Imply that management is not adequately investing in the business, favoring short-term results over long-term growth, or does not know how to properly manage the business.

Are being used to artificially increase earnings per share when profits are stagnant.

Are being used to fuel executive compensation at the expense of other stakeholders. For example, companies buy back their stock to offset the impact of executive stock option exercises and stock award vesting so that the outstanding share count remains the same and dilution is avoided.

The company's organizational documents.

The company's material contracts, including credit agreements and indentures.

Any outstanding orders, judgments or similar rulings that could restrict or prohibit the repurchase.

State corporation laws and other laws that could restrict or prohibit the repurchase.

Any other regulations applicable to the company, such as industry-specific regulations.

Rules and requirements of the securities exchange on which its stock is listed.

Federal securities laws, rules and regulations.

Practice Note, Issuer Stock Repurchases: What are the Options? provides an overview of the various methods that an issuer may use to repurchase its outstanding equity securities, including issuer tender offers, open market purchases and privately negotiated purchases. This Note also examines the duties of the board of directors for any stock buyback program, the disclosure requirements and other related issues which commonly arise in the context of these programs.

Practice Note, Issuer Stock Repurchases Under Rule 10b-18 examines the SEC's safe harbor for issuer stock repurchases under Rule 10b-18 of the Exchange Act and identifies other considerations for an issuer when conducting a stock buyback program, including the application of Rule 10b-18 to repurchases outside the US and the interaction of the rule with other federal securities laws.

Practice Note, Dividends, Redemptions and Stock Purchases covers the actions necessary for a Delaware corporation to effect a stock repurchase as well as a dividend or redemption.

Standard Clause, Board Resolutions: Issuer Stock Repurchase Program is a set of resolutions of the board of directors of a reporting company authorizing and approving the company's stock repurchase program.

Standard Document, Press Release: Issuer Stock Repurchase Program is a form of press release for a reporting company announcing board authorization of a company stock repurchase program.

Issuer Stock Repurchases Checklist summarizes issues for a company to consider and key steps to take when effecting a stock repurchase on the open market in reliance on the safe harbor provided by Rule 10b-18 under the Exchange Act.