Company Share Buybacks2022-10-06T14:27:34+00:00

Company Share Buybacks

Share Buyback is likely to be used to allow a shareholder to leave a company. This could be due to retirement or for personal reasons.

Attwells Solicitors has a lot of experience of acting for companies undertaking share buybacks, our Company Share Buybacks page provides you with a brief summary of the key points that must be considered when contemplating a Share Buyback. If, upon review, a Share Buyback sounds like the right choice for your Company to proceed with then please do look to get in touch with us.

Share Buyback requirements

To undertake a Share Buyback a private limited company must comply with the Companies Act 2006. Failure to comply with these requirements will result in the buyback being held as void, and both the Company and its officers being held as committing an offence under the Act. This can lead to the Company’s officers being potentially liable to incur an unlimited fine or suffer a prison sentence up to two years, or indeed both.

It is therefore prudent that the procedure afforded by the 2006 Act is both understood and followed correctly.

Any limited company can buy back its own shares and the legislation does not require a specific provision to be contained within a company’s articles.

However, should a company’s articles expressly prohibit the right to buy back their own shares then the Articles of Association shall need to be amended before the buyback proposal can be completed.

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Share Buyback Agreement

The terms of the Share Buyback will normally be incorporated within a Share Buyback Agreement. This Agreement shall be made between the Company and the shareholder(s) who are having their shares bought back and would seek to include the following information:

  • Names of shareholder(s) seeking to sell their shares back
  • The number and type of shares being sold
  • The price being paid for the shares
  • Whether the shares are to be bought in one single completion, or multiple completions where the total shares are bought back in several tranches on particular dates

It is important to note that shares being bought back by a Company must be paid for at the time they are purchased.

Financing a Share Buyback

A buyback of shares can be financed in any of the following ways:

  • Distributable Profits – The simplest method to fund a share buyback is by making use of a Company’s distributable profits. It is of course prudent to take the advice of an accountant to assess the finances of a Company to ensure sufficient profits are available before relying on this method of finance.
  • New Issue of Shares – It must be clear that the issue of shares is for the purposes of funding the Share Buyback. To comply with this, it is recommended to undertake the Share Buyback within a few months of the new shares being issued.
  • Out of Capital – Given that a buyback from capital could be detrimental to the interests of the Company’s creditors, the law provides for additional requirements to be followed in order for such a buyback to be effective.

Share Buyback Approval

To commence a Share Buyback the Company must obtain shareholder approval either before the agreement is entered into or after the agreement only where the agreement is conditional upon shareholder consent to the terms being provided.

Unless a company’s articles state otherwise, an ordinary resolution of the shareholders shall be sufficient to approve the buyback. If the payment is being made out of capital then do be aware that a separate special resolution will also be required to approve the method of finance being utilised by the Company.

Once approval has been granted there is no time limit as to when this approval can be exercised by the Company.

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