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#14688 - Buyback Of Shares - Business Law and Practice

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Buyback of Shares

Buying Shares Back

Under s.690 the company can buyback shares, subject to checking the Articles of the company. The shares will be bought off-market (s.693(2)(a)) if they are not traded on a recognised investment exchange.

A contract will be created between the company and the shareholder. This contract must be authorised by the shareholders using an ordinary resolution and must also be available for the shareholders to inspect for 15 days prior to the general meeting (s.696(2)(b)) or sent with the written resolution (s.696(2)(a)).

Funding the Buyback of Shares

The buyback of shares can be funding in the following ways:

Capital (s.692(1)) which is the amount invested by the shareholders that cannot be distributed to protect creditors. There are additional restrictions on a buyback of shares using capital.

Distributable profits (s.692(2)(a)(i)) are the working profits of the company with all of the losses deducted off the profits.

Fresh issue of shares (s.692(2)(a)(ii)) can be used to fund the buyback of shares as long as the new shares were issued for the sole purpose of funding the buyback.

Cash (s.692(1ZA)) can be used to fund a buyback, but only up to the lesser of 5% of the company’s share capital or 15,000.

The buyback must be funded first using the distributable profits, if more money is required then capital can be used to fund the rest of the buyback of shares.

Procedure Plans

Procedure Plan for Buyback of Shares using Distributable Profits, Fresh Issue of Shares or Cash
BOARD MEETING 1 GENERAL MEETING BOARD MEETING 2

The Articles must not prohibit the buyback of shares (s.690).

[If using cash the Articles must not prohibit using cash (s.692(1ZA)).]

The contract must be available for 15 days before the GM or sent with the written resolution (s.696(2)).

Call the general meeting and give notice in the usual way.

 Ordinary resolution to approve the contract for the buyback of shares (s.694(2)).

Report on GM

Board resolution to buyback the shares, authorise a signatory and sign the contract.

Post Meeting Matters:

  • Returns must be sent to CH within 28 days with a statement of capital (s.708(1) & s.708(2))

  • Amend the Register of Members; cancel and reissue share certificates (s.688)

  • Keep a copy of the contract for 10 years from the date of purchase (s.707(2)-(3))
Procedure Plan for Buyback of Shares using Capital
BOARD MEETING 1 GENERAL MEETING BOARD MEETING 2

The Articles must not prohibit the buyback of shares (s.690) or the use of capital (s.709(1)).

The contract must be available for 15 days before the GM or sent with the written resolution (s.696(2)).

A directors statement and auditors report must be prepared (s.714) and be available to the shareholders for inspection at the registered office.

The DS & AR can either be sent with the written resolution and must be prepared not more than 1 week before the GM (s.716(2) & s.718(2)).

Call the general meeting and give notice in the usual way.

Ordinary resolution to approve the contract for the buyback of shares (s.694(2)).

Special resolution to approve the payment of the buyback of shares using capital (s.716(1))

Report on GM

Board resolution to buyback the shares, authorise a signatory and sign the contract.

Post Meeting Matters:

  • Notify creditors in the Gazette within 1 week of SR (s.719);

  • Creditors can object to the redemption within the 5 weeks (s.721(1)-(2));

  • File at CH the following documents SR (within 15 days), DS & AR (both within 1 week).

  • Payment for the shares out of capital made between 5 and 7 weeks after SR (s.723(1))

  • Returns must be sent to CH within 28 days with a statement of capital (s.708(1) & s.708(2))

  • Amend the Register of Members; cancel and reissue share certificates (s.688)

  • Keep a copy of the contract for 10 years from the date of purchase (s.707(2)-(3))

Timings Using Capital

The longest procedure would be the normal notice procedure in which the total timings would take 86 days. Board meeting 1 would start the proceedings off and because the contract has to be available for 15 days before the general meeting (s.696(2)(b)), this meeting cannot be held until Day 16. However, in this time the Directors’ Statement and Auditors Report can be created and must be done within a week of the general...

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