Board Resolution: Stock Repurchase Program

Summary

This is a template for board resolutions for the repurchase of corporate stock. Though federal securities laws may not strictly require it, state law may determine the need for a shareholder vote on stock repurchase programs. This template includes practical guidance, drafting notes, and an optional clause. As a general rule, any corporate securities transaction affecting the interests of shareholders of the common stock of a corporation should first be reviewed by the Board of Directors and then be authorized and approved by it as in the best interests of the corporation and its shareholders. This is also the case for corporate actions that ostensibly affect shareholder value in a positive way, such as stock repurchase programs. However, in states that do not mandate that stock repurchases (or dividend payments) be paid from retained earnings, if a corporation issues corporate debt to finance stock repurchases (or dividend payments), this may have a diminutive affect on shareholder value. Additionally, while federal securities laws do not strictly require corporations to seek shareholder approval before conducting a stock repurchase program, stock repurchase programs potentially expose corporations to the risk of liability under market manipulation rules. Corporations may avail themselves of a non-exclusive safe harbor from this potential liability if they conduct stock repurchases in accordance with the requirements of Securities and Exchange Commission (SEC) Rule 10b-18. Regardless of how they are structured, however, stock repurchase programs are subject to the ongoing reporting requirements of the Securities Exchange Act of 1934. Moreover, state law (or a corporation's bylaws or articles of incorporation) may determine whether a stock repurchase program should also be put to a vote of the shareholders. Likewise, state securities laws may dictate whether stock repurchase programs are appropriate in the circumstances, given legally available funds requirements. For a full listing of key content for in-house counsel and corporate secretaries when performing corporate functions, see In-House Corporate Secretary Resource Kit. For a full listing of key content covering Board Resolutions for Private Company Corporate Governance, see Private Company Corporate Governance Board Resolutions Resource Kit. For more information, see Corporations and Board of Directors State Law Survey. See also, Ballantine & Sterling California Corporation Law § 143, Top 10 Practice Tips: Stock Repurchase Programs, Issuer Stock Repurchases (Rule 10b-18 Safe Harbor) Checklist, and Dividends, Redemptions, and Stock Repurchases.