Can a firm buy itself?
Suppose you got scammed by an incubator, who is however apparently willing to sell his shares (which are now worth a couple times more than the initial injection (which effectively did nothing))
Could you take out a loan backed with your own firm to buy these shares through a third party, freeze them, and use a portion of your budget to pay back the loan at an optimum rate (growth vs interest) and then unfreeze the shares, buy them all for 0$ from the third party and put them back into the firm?
Is that considered insider trading? Better alternatives if you know the incubator doesn't like you for several reasons?
Incubators Seed Funding Shares
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smells fishy... – Littleadv 12 years ago
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Smells like a [BIMBO](http://www.investopedia.com/terms/b/buyinmanagementbuyout.asp) – Jim Galley 12 years ago
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what do you mean by "freeze"? Companies buy back stock all the time. This is not a big deal. – Tim J 12 years ago
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by freeze I mean that the owner would be unable to sell them, vote with them or use them in any way under contract. – User35945 12 years ago
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you definitely can't do that... that makes the shares worthless, only thing you can do, and quite unlikely for the 3rd party to agree to this, is when they flip it, they do it on credit, and collateralize against your company. it's risky, because if you can't pay, they'll be sitting on a boatload of worthless paper – User60812 12 years ago
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I don't understand why you want to go through third-parties and then try to buy for $0 from that party. Why not just do a buy back through the company? – Tim J 12 years ago
2 Answers
It is common for a company to buy it's own shares, so that aspect is not an issue. Getting a loan for that purpose may be more problematic and will depend upon factors such as how your business is doing, cashflow, etc.
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From the way I understand it you need a certain level of transparency when you do a repurchase. Obviously you can't afford that because the incubator will try to milk you as hard as he can. The loan itself isn't really a problem according to the preliminary quotes. – User35945 12 years ago
I'm a little confused on what you're trying to do. Honestly I am not aware of any possible way to freeze shares, I'm pretty sure that's not legal. You might be able to buy shares through 3rd party (if the incubator is unwilling to sell them back to you), then buy them back from the 3rd party at a premium.
As far as the loan goes as @Steve Jones said factors such as revenue, cashflow, and other financials need to be considered. General state of the business as well.
As far as insider trading, share buyback is a common policy, and quite a few private & public companies do it on a regular basis for a variety of reasons. It definitely is not insider trading
