Companies do not have to pay dividends on shares they have repurchased.Assuming a company pays dividends at all, this gives it a couple of attractive options.Companies of all sizes buy back their own stock for a number of reasons, such as to try to pump up the share price or to insulate the company from the possibility of a hostile takeover.
If the Big City Dwellers sold their $1 par value stock for $5 per share, they would receive $25,000 (5,000 shares × $5 per share) and would record the difference between the $5,000 par value of the stock (5,000 shares × $1 par value per share) and the cash received as additional paid‐in‐capital in excess of par value (often called additional paid‐in‐capital).
When no‐par value stock is issued and the Board of Directors establishes a stated value for legal purposes, the stated value is treated like the par value when recording the stock transaction.
If the company buys back 10,001 shares from other stockholders, the founders' stock becomes a majority stake.
In a stock buyback, a company is literally buying out some of its shareholders.
Also, after a buyback, the value of the company is spread over fewer available shares, so each outstanding share represents a bigger piece of ownership, and therefore is worth more.
This price effect is a big reason why buybacks are usually popular with stockholders: Even those who don't sell their shares back to the company will benefit because it will make their shares more valuable.
It could pay the same total amount in dividends as before, but pay a larger amount for each share still outstanding, something that will usually make the stockholders happy.
It could also pay the same amount per share as it did before the buyback, which could at least keep the shareholders satisfied.
Organization costs is an intangible asset, included on the balance sheet and amortized over some period not to exceed 40 years.