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#16633 - Buyback Of Shares - Business Law and Practice

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BUYBACK OF SHARES

Case study on the procedure for the buyback of shares out of PROFITS by a plc

Arkwright Limited has adopted the Model Articles without amendment and all issued shares have a nominal value of 1. The issued share capital of the company is 100,000. The abridged balance sheet for the company is set out below. A is to sell his 20,000 shares back to the company for 28,000 (1.40 per share).

Pre-Buyback Calculation Post-Buyback
Net Assets 140,000 140,000 – 28,000 112,000
Paid-up Share Capital 100,000

100,000 – 20,000

nominal value = 1

 80,000
Capital Redemption Reserve –

0 + 20,000

nominal value = 1

 20,000
Profit & Loss Account 40,000 40,000 – 28,000 12,000
Shareholders’ Funds 140,000 80K + 20K + 12 K 140,000

Net Assets and Shareholders’ Funds should be the same.

Voting at the GM

At the GM at which the resolution to approve the contract to buy back the shares is put to a vote, all shareholders attend (including A), but E and F vote against the resolution. Every other shareholder votes in favour, including A. The shareholders and their respective holdings are set out below.

Shareholders % if all vote % if seller does not vote Holdings
A 20% – 20,000
B 5% 6.25% 5,000
C 4% 5% 4,000
D 15% 18.75% 15,000
E 18% 22.5% 18,000
F 25% 31.25% 25,000
G 6% 7.5% 6,000
H 7% 8.75% 7,000
Total 100,000

Will the resolution be passed?

  • If A votes:

    • E + F = 43%

    • Resolution will not pass

  • If A does not vote:

    • E + F = 53.75%

    • Resolution will pass

  • Since A’s vote would pass the resolution, therefore under s.695(3), A would not be permitted to vote in this resolution, therefore the buyback of shares would fail.

Case study on the procedure for the buyback of shares out of CAPITAL by a plc

Arkwright Limited has adopted the Model Articles without amendment and all issued shares have a nominal value of 1. The issued share capital of the company is 100,000. The abridged balance sheet for the company is set out below. A is to sell his 20,000 shares back to the company for 24,000 (1.20 per share).

Pre-Buyback Calculation Post-Buyback
Net Assets 120,000 120,000 – 24,000 96,000
Paid-up Share Capital 100,000

100,000 – 20,000

nominal value = 1

 80,000
Capital Redemption Reserve –

0 + 20,000 – 4,000

nominal value = 1

 16,000
Profit & Loss Account 20,000

20,000 – 20,000

But still need 4,000 to buyback

 0
Shareholders’ Funds 120,000 80K + 16K + 0 96,000

See s.734 for accounting consequences of payment out of capital.

Timeline for company meeting required to secure all shareholder authorities before Arkwright Limited can buy A’s shares using capital.

Any general meetings will be held on full notice.

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