Share Buyback

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Published: 21 Jan 2015

Share buybacks are a way to finance a share purchase.

Imagine the time has come when you wish to realise the interest in your company and you wish to agree with your other shareholders the price for your shares.

But what happens if the remaining shareholders do not have the funds to pay for your shares and they do not wish to resort to personal bank loans?

Never fear, there is another way!

Share Buybacks

As a private company, it can purchase the shares from you by passing an ordinary resolution, using its cash funds, whether it is for par value or at a premium. The company’s Articles of Association may need to be amended to ensure that there is an authority for the company to purchase its own shares.

In the simplest example, if there is a premium, it is written off against revenue reserves and an amount equal to the par value of the shares being redeemed is transferred from revenue reserves to a Capital Redemption Reserve Account. This preserves the company’s capital for the protection of its creditors.

Where there is insufficient company cash to pay for the shares, the remaining shareholders may subscribe for additional shares at par value or a premium to make up the difference. Being a smaller sum, the remaining shareholders may be able to pay for the share issue without resorting to personal bank loans.

Companies Act 2006 Procedures

There are further special rules. Where there is a reduction of capital, care must be taken to ensure that these rules are properly applied. This includes the Directors signing a declaration of solvency and obtaining an auditor's report, confirming the company to be solvent after the capital repayment. A special resolution (over a 75% majority) needs to be passed by the members approving the transaction. The declaration of solvency form is to be published in the London Gazette.

It is important that the procedures laid down in the Companies Act 2006 are followed. So professional advice must be sought from a corporate lawyer and a qualified accountant who are conversant with the law on these transactions.

If your company is in this situation, David Cane of Sundial Tax & Finance Ltd, would be happy to:

  • Value your shareholding
  • Advise on the necessary accounting transactions 
  • Advise on the taxation implications of such a transaction
  • Recommend a suitable corporate lawyer to advise on the relevant procedures to be followed under the Company’s Act 2006. 

Contact David Cane on 0845 177 0036 or send an email.