If you require support with Share Buybacks, Blacks Solicitors’ Corporate team can help.
A Share Buyback, also known as a ‘purchase of own shares’, is a transaction where by a company buys shares in itself and such shares are either cancelled or, less usually, held in treasury.
Share Buybacks are strictly governed by Part 18 of the Companies Act 2006 which imposes harsh penalties on both the company and its officers if they fail to comply with the relevant sections. In addition to complying with the legislation, a company’s Articles of Association, and indeed any Shareholders’ Agreement, should be checked to ensure that Share Buybacks are not prohibited.
There are a number of reasons why a company may choose to purchase some of its own shares, for example to effect the exit of a shareholder or to restructure its share capital.
Share Buybacks can be financed in a number of ways, dependent on the type of company. A private limited company can purchase its shares out of distributable profits, out of the proceeds of a fresh issue of shares (made for the purpose of financing the purchase), or out of capital (subject to certain legislative requirements).
A purchase of own shares made by a limited company must be made pursuant to a contract or memorandum. This document will contain all of the key terms surrounding the sale and purchase of the shares.
In order for a Share Buyback to occur, the company must obtain the agreement of more than 50% of the shareholders by means of a shareholder resolution, except where shares are purchased out of capital (where the authority of 75% of the shareholders is necessary).
Frequently Asked Questions
What happens to the shares once a Share Buyback has completed?
This is dependent on how the shares were purchased. If distributable profits were used to finance the Buyback, then the shares may be cancelled or held in treasury. However, if the shares are purchased out of capital, or from the proceeds of a fresh issue of shares, then the shares must be cancelled.
What post completion steps need to be taken after a Share Buyback?
Stamp Duty must be paid on any Buyback where the consideration paid is over £1,000. All of the relevant paperwork will need completing and filing at Companies House, and the statutory books of the company must be updated.
For more information about Share Buybacks, please contact Blacks’ Corporate team today via email or call 0113 207 0000.