Financial assistance

A variety of assistance

The assistance can be of a variety of different types, although the most common type of assistance is a financial guarantee for a loan, or third party security to allow a borrower to borrow money to buy shares, but it would also normally include a gift or loan from the company for these purposes.

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 capital. Concerns have also been expressed 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 at common law prior to its condification by statute.If that is correct, then laws against financial assistance may be much more prevalent than is normally assumed.

Laws against financial assistance are unpopular, and many jurisdictions which have enacted them have later sought to repeal them.They also have relatively little effect. Most jurisdictions provide for "whitewash" procedures, whereby the shareholders can authorise transactions that would otherwise be void for financial assistance. And most jurisdictions which prohibit financial assistance permit the company to purchase its own shares and hold them in treasury, 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.

Copyright 2008 - France BtoB from Wikipédia