A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market. This process represents an alternate and more flexible way of returning money to shareholders, relative to dividends. When used in coordination with increased corporate leverage, buybacks can increase share prices. In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the companys outstanding equity. The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance.

There are six primary methods of stock repurchase under U.S. corporate law: open market, private negotiations, repurchase "put" rights, two variants of self-tender repurchase (a fixed price tender offer and a Dutch auction), and accelerate repurchases. More than 95% of the buyback programs worldwide are through an open-market method, whereby the company announces the buyback program and then repurchases shares in the open market (stock exchange) . A company may also buy back shares held by or for employees or salaried directors of the company or a related company, referred to as an "employee share scheme buyback".

Companies buy back shares for various reasons, including:

• Investing in themselves: If a company feels that its shares are undervalued, it may do a buyback to provide investors with a return. The share repurchase reduces the number of existing shares, making each worth a greater proportion of the company.

• Compensation purposes: Companies often award their employees and management with stock rewards and stock options. To offer rewards and options, companies buy back shares and issue them to employees and management. This helps avoid the dilution of existing shareholders.

• Rewarding investors: A company may announce a share buyback program to repurchase outstanding shares at the current market price to reward investors and provide a return to them.

• Consolidating ownership: A company may want to consolidate ownership, preserve stock prices, return stock prices to real value, or boost shareholder value.

Overall, a share buyback is when companies pay shareholders to buy back their own shares, cancel them, and ultimately reduce share capital. While fewer shares remain in circulation, shareholders get both a larger stake in the company and a higher return on future dividends.