Wednesday, 5 Oct 2016

Can a Company buy its own Shares?

Can a Company buy its own Shares?

Share buy backs are often used within family companies where a shareholder wishes to leave but the remaining shareholders would not want third parties to hold shares. A private company can buy back its own shares from one of more of its shareholders however it can only do so in prescribed circumstances.

When purchasing its own shares the company must comply fully with the requirements of the Companies Act 2006. Our specialist commercial lawyers, experienced in the area of buy back, could ensure that these requirements are fulfilled.

Funding the share buy back

The company and the shareholder selling the shares will need to agree a price for the shares and the company will need to have distributable reserves to fund the share buy back. Most private companies are prohibited from funding a share buy back with borrowed money however the company can raise money by issuing new shares.

Buy back

Before the shares are bought by the company the articles of association will need to be reviewed to ensure that they do not prohibit the buy back of shares.

The consent of company shareholders will also be needed before a buy back can take place.

A purchase of own share agreement will need to be put into place to set out the terms of the agreement and once signed off stamp duty will need to be paid. The shares will then be cancelled.

Prior to buying back shares all options will need to be reviewed to decide the best course of action of the business. For further advice or assistance with purchasing shares or on any commercial matter contact our Commercial Law Specialist Umberto Vietri on 01535 613674 or at umberto.vietri@awbclaw.co.uk

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