| Overview Shares are cancelled (s.706(b)(i)) Issued share capital decreases Voting control may be altered Create/increase a capital redemption reserve Reduce share premium account (if any paid on buy-back or financed by a fresh issue) | Overview Offends maintenance of capital It is an exception (see the notes) Expensive (advertise, auditors…) Protracted and lengthy Statement of solvency required Creditors may potentially bring court action under s.721 to cancel the buy-back | Overview Only for private company (s.641) Reclassify shares into profit Existing share capital is treated as decreasing (decrease is ‘distributable profit’) Avoids delay and expense of a buy-back out of capital | |
| Conditions Permissible under s.692(2) if: Co.’s Articles don’t prohibit it (s.690(1)) Shares are fully paid (s.691(1)) Shares are paid for by the Co. at the time of purchase (s.691(2)) A contract is entered with the S’holder whose shares are being bought. This contract must be approved by the S’holder by SR at GM or WR (s.694(2)) | Conditions Permissible under s.709(1) if: Articles don’t prohibit it (s.690(1)) Shares are fully paid (s.691(1)) Shares are paid for by the Co. at the time of purchase (s.691(2)) Auditors prepare a report stating they know no grounds that would prevent Ds from making statement Ds make a statement of Co.’s solvency for the next 12 months (s.714) at least 1 week before the GM (s.716) If Co. is wound up as a result of a faulty D’s Statement within 1 year Ds and Seller are financially liable s.76 IA 1986. Ds’ subject to criminal sanctions under s. 715 for breach of s.714 Same Contract | Conditions Permissible if: Articles do not prohibit the reduction in share capital (s.641(6)) Ds make a statement of solvency (s.642(1)) about the next 12 months (s.714) at least 1 week before the GM (s.642(1)(a)) If Co. is wound up within 1 year Ds and Seller are financially liable s.76 IA 1986. Ds’ subject to criminal sanctions | |
| Before the BM Check the Articles for a restriction on the power to buy-back under s.690 (MA silent; TA35 permits) Check shares are fully paid (s.691) Check accounts within 3 months to ascertain available profits | Before the BM Check the Articles for a restriction on the power to buy-back under s.690 (MA silent; TA35 permits) Check shares are fully paid (s.691) Check accounts within 3 months to ascertain available profits Commission an auditor’s report and make a statement of solvency | N/A | |
| Call, Notice, Declaration, Quorum, Voting of the BM | |
| BM1 | BM1 Discuss the engagement of the Ds’ duties, particularly s.172 Discuss the solvency statement Is it fine to go ahead with it? -
The board resolves to: Approve the statement of solvency (s.714) Make the buy-back out of capital (and profits?) (s.716(1)) Approve the terms of the buy-back contract (s.694(2)) Make contract available for inspection/annex it to the WR Propose a GM/WR | BM1 Discuss the engagement of the Ds’ duties, particularly s.172 Discuss the solvency statement Is it fine to go ahead with it? -
The board resolves to: Approve the terms of the buy-back contract Make contract available for inspection/annex it to the WR Approve the statement of solvency (s.714) Propose a GM/WR | |
| Call, Notice, Declaration, Quorum of the BM | |
| GM/WR GM: Make the contract available at least 15 days prior to the GM and at the GM itself (s.696(2)(b)) WR: Circulate the contract with the WR or before it (s.686(2)(a)) Resolutions: OR to approve the contract to buy-back out of profits If by WR, approve to circulate the WR Voting: | GM/WR GM: Make the contract available at least 15 days prior to the GM and at the GM itself (s.696(2)(b)) Auditor’s report and statement of solvency must be at the GM itself (s.718(2)(a)) WR: Circulate the contract with the WR or before it (s.686(2)(a)) Auditor’s report and statement of solvency must be circulated with the WR (s.718(2)) Resolutions: OR to approve the contract to buy back the shares (s.694(2)) SR to approve using the payment out of share capital to buy shares (s.716(1)) If by WR, approve to circulate the WR Voting: GM: the member who his selling his shares back cannot vote if the OR would not have passed without their consent (s.695(3)) and (s.717(3)) WR: cannot participate in the WR at all (s.695(2)) and (s.717(2)) | GM/WR GM: Solvency statement to be available at the GM itself (s.642(3)(b)) WR: Annex the solvency statement with the WR or before it (s.642(2)) Resolutions OR to approve the reduction in share capital (s.641(1)(a)) If by WR, approve to circulate the WR | |
| Administration (or do at end) | Administration (or do at end) File the SR/WR at Companies House within 15 days (ss.29/30) Keep copy of board minutes for 10 years (s.355) [Keep copy of WR for 10 years (s.248)] Place notice in London Gazette and a national paper within 7 days of SR being passed [or give a written notice to every member] | Administration (or do at end) File the SR/WR at Companies House within 15 days (ss.29/30) Keep copy of board minutes for 10 years (s.355) [Keep copy of WR for 10 years (s.248)] | |
| Reconvened BM1 / BM2 If BM2, then deal with call, etc. -
The board resolves to: Authorise 2 Ds to sign the contract (ss.43/44) Sign the contract and enter into it Carry out the necessary administration | |
| Administration Pay for the shares Form SH03 within 28 days of buy-back SDT (s.707) [Form SH06 for subsequent cancellation of buy-back] Contract at RO for 10 years and available for inspection (s.702) Register of members Destroy old share certificate SDLT (as company is the buyer) (see how to calculate below) [BM2’s minutes kept for 10 years at the RO (s.355)] Inform Accountans | Administration Pay for the shares no earlier than 5 and no later than 7 weeks after the SR (s.723(1)) Send to Companies House Form SH03 within 28 days of buy-back (s.707) Send to Co.’s House [Form SH06 for subsequent cancellation of buy-back] Contract at RO for 10 years and available for inspection (s.702) Register of members Destroy old share certificate SDLT (as company is the buyer) (see how to calculate below) [BM2’s minutes kept for 10 years at the RO (s.355)] Inform Accountans | Administration Pay for the shares Form SH19 + solvency statement within 15 days (s.644(1) and (5)) Contract at RO for 10 years and available for inspection (s.702) Register of members Destroy old share certificate | |
| Timing Immediate (no delay) | Timing Statement of solvency made (s.716) and Auditor’s report made (s.714) 1 week (max.) 1xSR to buy-back and to buy-back out of capital Therefore, it will take between 5 weeks (minimum) and 7 weeks (maximum). Buy-back must be completed within this window. (s.723) | Timing Immediate (no delay) | |
| Stamp Duty Tax (SDLT) implications Co. Buying Back shares must pay Stamp Duty. To calculate use: | USE Form SH03 to pay SDLT = | X 0.5 (SDLT rate) | | SDLT liability of Co | | |
