As far as I know, it shouldn't happen, a company shouldn't have that much cash to be able buy all of its shares, because the share price should indicate that the company has that much cash in the first place - but let's suppose it happens (e.g. the company takes out a huge enough loan to buy back all of its shares or the share price is exceptionally low due to some perceived risk). What would happen in this case, who would own the company?
This is a great question. The correct answer is that a buyback of all shares is a liquidation. If there are zero shares, this can only mean the company no longer exists. Note that in normal (partial) buybacks, the company shrinks in value. The natural extreme of this is that the company disappears.
If the company is undervalued on the market compared to what it can liquidate its net assets for, the shareholders might pursue liquidation. However, there is unlikely to be a big profit in liquidation because other investors would have bid up the shares on the market based on the same idea.
On the other hand, if the company's net assets are insufficient to buy back all shares, the suggestion of borrowing money won't help, because all company debts have to be paid off as part of liquidation. There are laws against a company distributing assets to shareholders, retaining debts, and leaving the company insolvent (an abuse of its limited liability status).
Generally, healthy companies have a market value well above their liquidation value due to their future potential. This is the market telling them it would be irrational to liquidate. They may still want to pursue partial buybacks when they have some excess assets that aren't contributing strongly to profits and are better distributed to shareholders.
Ben Voigt had an interesting comment:
Mathematics forbids it. The sum of all shares must add to 100%. That 100% can be split fewer ways, but it cannot be split zero ways. When you get down to one share outstanding, that share represents ownership of the entire company. There is nothing the company can offer that final shareholder in exchange for his share, because anything it could offer, he already owns. Share buybacks are like reverse splits -- they result in concentration of ownership, not elimination of it.
This sounds compelling but gives a misleading impression. Reverse splits increase the value of each share and do not shrink the company. Buybacks do shrink the company as money flows out of the treasury. If the liquidation value is $50 per share, then at the point when that last share is notionally being bought out, the company has just $50 left. The company provides 100% of its assets (the whole $50) to redeem that last share, and in the process it ceases to exist.
I found the answer in Wikipedia: if a company buys back its own share, it's called treasury stock and "Total treasury stock can not exceed the maximum proportion of total capitalization specified by law in the relevant country", so it's an actual law that forbids companies buying back all of their shares. Also treasury stock do not have voting rights, so management cannot wrestle control from ownership by buying back shares.
Ignoring regulation, how would this actually happen?
Imagine a company had a market cap of $100 million. Obviously, that market cap includes any cash on hand, so no company could afford to buy its own stock with its own money.
But let's say the company first borrowed $100 million. Now it has $100 million in cash on hand and a debt of $100 million, so the value of the company is unchanged (disregarding any change in value caused by its new liquidity or its new debt ratio).
So now it could buy back, and effectively extinguish all its outstanding stock. Which raises two questions:
- Why would any bank or financier lend a company an amount equal (or even remotely close to) its market cap?
- But assuming we could locate such a zestfully incautious lender, what would this company be now?
It's now, in some sense, a non-profit: if the company had any money left over after business operations (and of course, as Acccumulation points out in the comments, after paying back its fortunate lender), it would have no one to distribute to. But unlike real non-profits, it wouldn't have a board of directors or any way to have stockholder referenda.
This seems like the business equivalent of a black hole, collapsing into a singularity, and no normal rules apply. Which is probably somewhere way down on the list of reasons that regulations forbid it.
Realistically, that isn't what would happen, quite.
To start, there will be insiders who hold a significant number of shares.
As such, they elect a fraction of Board members. They will encourage the Board to instruct management to do stock buy-backs. These insiders do not cooperate: they do not sell their shares.
As a result, with fewer total shares in circulation, the insiders now have a larger fraction of total shares.
When their fraction of ownership becomes >50%, they control the Board. They can press on with the stock buybacks even if it injures the company to do so. They can make decisions that poison the company for other investors, (e.g. do something horrible so the "green" mutual funds all drop them). The only thing that might stop them is a lawsuit from a minority shareholder saying they are damaging the company.
The endgame here is that this "club" of insider shareholders, as well as possibly a determined dissident or two, are the only shareholders remaining. This ends public trading. Now it is a privately owned company.
If everyone sells out to one stockholder, then we have arrived at your destination.
Let's go further. They decide they want no shareholders at all. The shareholders vote to change their mission to one compatible with a
- cooperative (co-op, like a condo association or power cooperative)
- trade association (like NEMA, NFPA, API, NRA etc.)
- charitable organization (like a for-profit makerspace converting to nonprofit because for-profit was the wrong business model looking at you TechShop, or a commercially defunct industry converting into a museum of itself (say, East Broad Top Railroad or the British canal system).
Then they simply get shareholders to agree, buy out dissenters, and file the requisite paperwork. They are now "owned" by Kathy Jennings, in her capacity as the Attorney General of Delaware, since they surely incorporated there.
In that case, they answer to her, and Board members are elected either by a) other board members, or b) Members (one member one vote), or c) Shareholders (one share one vote). Membership or shares are allocated on some fair basis, e.g. in a condo association based on assessed value.
I think there would be regulations that prohibit such things. Plus even if it's isn't the case, practically it's not possible.
One can create a trust that may be similar... Essentially one needs to think how board of directors are appointed or removed. I.e the role that share holders play... This includes salaries to director etc,
A trust can be established in similar manner with trustee... Long lasting trusts put generic trems as to who all will be trusties... Say local elected congressman or municipal commissioner etc
When a corporation is formed, a shareholder agreement is established with a structure for how shares are divvied up for ownership. A portion of these shares are jointly company-owned and can be used to raise capital in exchange for partial ownership in the company itself.
When a corporation buys back its own shares, it is simply removing them from general circulation in the stock market, and taking back ownership of them. Even with all of its public shares bought back, the company still exists, the shareholder agreement is still intact, the company has simply become private and will be delisted from the exchange, as no one can trade it on the open market. The company is still owned, and operated as normal, except now there are no general shareholders sharing ownership in the company.
Even after going private, shares can still be traded, exchanged, and restructured by the owners as needed; but a company will never have no shares at all, until a company is dissolved at the final stage of liquidation.
The company doesn't buy back all the shares. A person or group of people buy all the shares. It is also possible that another company buys all the shares, thus company X now owns company Y.
In all cases somebody owns the shares. If the number of investors is small then the company is considered as a private company.
It does happen:
Outback goes private. A private equity firm bought the company, paid all the shareholders, and took it private. A few years later they IPO'd it for an enormous profit. However, they didn't have to; they could have kept it private.