This page sets out a summary of the procedure for a private limited company to purchase its own shares: (a) out of profits; or (b) out of the proceeds of a fresh issue of shares. It is assumed that it is appropriate for the shareholders’ resolution to be passed as a written resolution.
- The form of the share buyback contract should be agreed between the company and the selling shareholder(s).
- The shareholders of the company then pass an ordinary resolution in writing approving the buyback (requiring the approval of over 50% of the shareholders).
Note: Alternatively the contract can be entered into conditionally and subsequently approved by ordinary resolution.
- The buyback contract is sent to the shareholders at the same time as the written resolution is circulated.
- Be aware that if the company has different classes of shares, consent from each class of members may be required depending on the nature of the buyback and the rights attached to each class.
- Please note that there are detailed rules concerning the eligibility of the selling shareholder(s) to vote on the above resolution (which vary depending on whether the resolution is passed in writing or at a general meeting). Care should be exercised so as to ensure the Companies Act 2006 rules are not infringed. On a written resolution any shareholder who is selling shares to the company is ineligible to vote on the resolution approving the buyback contract.
- Any shares bought back by the company are cancelled and the amount by which the company’s share capital is diminished must be transferred to a capital redemption reserve.
- The purchase price for the shares must be paid in cash at the time of purchase, it cannot be paid in instalments or at a later date.
- Stamp duty is payable on the transfer of shares to the company if the consideration exceeds £1,000.
- There are also various Companies House filing requirements.
NOTE: A summary of additional procedures to be followed for a private limited company to purchase its own shares out of share capital can be found here.