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Company Share Buyback: Purchase of Own Shares

A popular method allowing shareholders to exit a company and sell their shares is via a share buyback. This is where a company purchases its own shares from the shareholder.

If you are considering carrying out a share buyback, it is important to get the correct legal advice. Lanyon Bowdler has an experienced team of expert Business Lawyers who have dealt with a substantial number of share buybacks and are in the best position to help you through the process to reach a satisfactory conclusion.

As part of our legal advice, we will explain how a share buyback works and how it is funded in clear, easy to understand language. We will also implement the buyback and file all necessary documents with the relevant authorities, whilst keeping you fully informed at every stage.

To ensure that the positions of both the company and the selling shareholder are protected, we work closely with accountants and tax advisers to ensure proper financial advice is obtained.

How can I Buy Back Shares?

The Companies Act 2006 sets out the procedure that must be followed to give effect to a share buyback. If the prescribed procedure is not adhered to, the buyback is at risk of being invalid and the officers of the company commit an offence.

Some of the criteria to be met under this procedure are:

  • The transaction must be permitted under the company’s Articles of Association
  • Shares have to be fully paid
  • The transaction must be documented (document to be available for inspection)
  • The shares must be paid for at the time of purchase (payment cannot be deferred)
  • The transaction must be approved by a resolution of the eligible shareholders (the individual selling their shares to the company is not eligible for the purposes of voting)

There are a number of ways in which a company can fund a share buyback. The most straightforward is to use distributable profits - these are accumulated, realised profits minus losses.

If the company does not have enough distributable profits to fund the buyback in full, the company may use capital.  Funding a share buyback in this way reduces capital, meaning that the company is at greater risk of insolvency, which could potentially prejudice its creditors. Therefore the procedure under the Companies Act 2006 is more onerous when using this method.

In the case of buybacks out of capital, the directors of the company must state the company is solvent and will be for the next year. This must be supported by a copy of the auditor’s report.  If the statement proves to be untrue and the company goes into liquidation with 12 months, the directors of the company may be subject to legal proceedings and could be made to contribute to the financial losses.

Contact Lanyon Bowdler

We have offices in Shrewsbury, Telford, Oswestry, Ludlow, Hereford, Bromyard and Conwy, where our friendly, knowledgeable staff will be happy to welcome you for an initial chat about your requirements. We work with businesses across Shropshire, Cheshire, Herefordshire, The Marches, Mid & North Wales, Birmingham, and the Midlands. As a leading national corporate law firm with specific expertise in company share repurchase procedures, we can advise and represent your interests wherever you are in England, Wales or Northern Ireland

For more information about how Lanyon Bowdler can help you with a share buyback please use the online contact form and someone will get back to you.

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