#4952 - Redemption And Buyback Of Shares - Business Law and Practice

Redemption and buyback of shares Impact redemption / buyback has upon balance sheet Top half of balance sheet 1) Net assets Net assets (cash) goes down by the amount of the redemption / buyback Redemption / buyback of 4000 preference shares out of distributable profits at a cost of PS140,000 Bottom half of balance sheet 1) Ordinary shares of 10p each Stays the same unless the redemption is of ordinary shares Before PS627,000 After PS487,000 Before PS1,600 After PS1.600 2) Redemption shares of PS[30] each Redemption share figure goes down by the base value of the shares being bought Redemption / buyback of 4000 shares of PS30 each = PS120,000 3) Share premium account Stays the same Before PS120,000 After PS0 Before PS5,400 After PS5,400 4) Capital redemption reserve Capital redemption reserve figure goes up by the base value of the shares being bought Redemption / buyback of 4000 shares of PS30 each = PS120,000 5) Retained earnings / undistributed profits Retained earnings figure goes down by the amount of the redemption / buyback Redemption / buyback of PS140,000 of preference shares out of distributable profits 6) Total shareholder funds (sum of 1-5 of bottom half of balance sheet) Total shareholder funds figure goes down by the amount of the redemption / buyback Redemption / buyback of PS140,000 of preference shares out of distributable profits Before PS0 After PS120,000 Before PS500,000 After PS360,000 Before PS627,000 After PS487,000 Redemption of redeemable shares 1) Redemption out of distributable profits / fresh issue of shares a) Before redemption 1) Articles must not restrict or prohibit the issue of redeemable shares - s.684(2) Companies Act 2006 2) Check the articles for the terms of the redemption (as no contract is required) 3) Check the company accounts to see if there are sufficient distributable profits and must use these first 4) If there are sufficient distributable profits, use these, otherwise use a fresh issue of shares. Alternatively use company capital 5) Redeemable shares must be fully paid b) After redemption 1) Notification must be made to Companies House within one month of redemption and must be accompanied by a statement of capital - s.689(1) and (2) 2) Amend the register of members 3) Cancel / reissue share certificates - s.688