[Corporate Advisory] Stock Ownership Acquisition Requirements Legal Review

Law firm Veat undertook legal review on behalf of A Company, a mobile game software development company, regarding the acquisition of equity shares.

A Company wished to conduct a legal review to determine whether the company’s acquisition of its own equity shares was an exception to the generally prohibited circumstances, i.e., when the company receives equity shares directly from shareholders.

“The Companies Act” prohibits companies from acquiring or issuing more than 1/20 of their total outstanding shares as collateral.

The acquisition of equity shares is related to company assets and can harm creditors’ interests, cause damage to shareholders due to stock price fluctuations, and be used as an unfair means of corporate governance related to control.

However, in the course of company management, there are often many cases where equity shares are useful, such as when shareholders are liquidated or when the company holds its own shares and uses them for financial resources or other transactions. However, even in these cases, there are limitations, but if the equity shares are acquired and utilized in a way that is not prohibited by “The Companies Act,” they can be beneficial to the company. Therefore, we recommend consulting with a legal expert with extensive practical experience in corporate legal affairs and proceeding cautiously.

The acquisition of equity shares means that the company acquires shares issued by itself in its own name and at its own expense.

Article 341 and Article 341(2) of “The Companies Act” meticulously regulate the methods of acquiring equity shares, and it is necessary to thoroughly check various conditions and procedures under “The Companies Act,” such as the total acquisition amount and shareholder meeting procedures.

Because various legal issues can arise in the process of a company’s management, it is important to conduct proactive preliminary reviews to check for legal risks.

Law firm Veat is a numerous corporate lawyers serving as ‘advisor/consultant’ to startups, venture capital firms, and provides prompt and efficient regular legal consultation services in the context of corporate management.

If you need assistance with corporate legal affairs regularly, please contact Law firm Veat.

Thank you.

Law firm Veat.