## Share Buyback

### Meaning

A share buyback is a company buying/repurchasing its own shares, which reduces its share capital. The shares bought back are cancelled, lowering the number of outstanding shares.

Buyback is also a form of shareholders' dividend: as the number of circulating shares falls, the future dividend per share rises.

### Two main methods of buyback

Method	How it works
Open Market	The company buys back its shares through the secondary market.
Tender Offer	The company offers a fixed price at which all shareholders can participate or sell their shares.

> Contrast with a stock split: A buyback reduces the number of shares (and capital); a split increases the number of shares (no change in capital).

⚠️ Common exam mistakes

Thinking bought-back shares remain outstanding — they are cancelled, reducing the outstanding share count and share capital.
Confusing the open-market route (secondary market) with the tender offer (fixed price offered to all shareholders).
Overlooking that buyback indirectly raises future dividend-per-share by cutting the number of circulating shares.

Reference:

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