Hacker News Reader

Comment by mruts | Hacker News Reader

It’s like a dividend but better. It’s tax efficient and now the company has more shares it can deploy if it needs to raise capital in the future. Moreover, it sends a signal to the market that the company believes it’s stock price will continue to rise in the future.

It’s kind of strange that people hate on buybacks all the time (people like Elizabeth Warren), but no one gives a rat’s ass about dividends.

View on HN

now the company has more shares it can deploy if it needs to raise capital in the future

Er, no. That's not how it works. Companies can create new shares out of nothing anytime they want.

This is subject to corporate charter/bylaws and, usually, the 20% rule.

Yes, there are some limits on companies ability to do this but they're generally not especially relevant for the types of things companies use their own stock for (stock based compensation, acquisitions)

> Companies can create new shares out of nothing anytime they want.

Companies have a number of authorized shares and typically need shareholder approval to increase it. Sure, they typically set the number of authorized shares high enough to run into the problem with any frequency, they can't "create new shares out of nothing anytime they want."

Consider the "they" in my "anytime they want" to be the shareholders. My point was that if the shareholders want to use stock for things like employee compensation or an acquisition they don't have to buy this stock from the market. They just make new shares.

The company can only create new shares if it has unissued capital. Granted this is kind of a arbitrary legal restriction, so it doesn’t really matter.

But the real issue is that shareholders will be informed when new shares are issued and no one likes dilution. I’m not 100% sure, but I believe existing shares held by the company can be sold without notification until a quarterly report.

> It’s tax efficient [...] It’s kind of strange that people hate on buybacks all the time (people like Elizabeth Warren), but no one gives a rat’s ass about dividends.

One follows from the other. It's because it allows a tax dodge.

The Democrats usually complain that the money should be used to increase salaries or whatever. Which is fine, I guess. But it’s not about a tax dodge (or at least that’s not the main point).

Reply on news.ycombinator.com