When a shareholder of a company is retiring, a private company will often decide to purchase their own shares back from the retiring shareholder. This most commonly arises when the other shareholders are unwilling or unable to purchase the shares and do not want a third party acquiring the shares. As a result of a private company acquiring their own shares, the share capital of the company will be reduced.
The provisions which facilitate a company purchasing their own shares are governed by Part 18, sections 658 – 737 of the Companies Act 2006. Share buybacks must also be permitted in the company’s Articles of Association. A company can amend their Articles of Association to allow for acquisition of their own shares by way of special resolution.
Commercial solicitor, Conor Cleverley, recently facilitated a company share buyback on behalf of his client and advises below on the typical documentation needed to implement the purchase of own shares. These include:
- Share buyback agreement
- Board minute to seek approval for buyback
- Ordinary resolution of the company approving buyback
- Companies House filings
- Stock transfer forms
- Indemnity for lost share certificate
Where the consideration for the acquisition of the shares is over £1,000.00, Stamp Duty will be payable at 0.5% of the purchase price. The calculated amount of Stamp Duty should be rounded up to the nearest multiple of £5.00. HM Revenue and Customs will provide an authentication code to confirm that Stamp Duty has been paid. Without this code, the return of purchase of own shares cannot be lodged at Companies House in accordance with section 707 of the Companies Act 2006.
The shares acquired can be cancelled at Companies House, in accordance with section 708 of the Companies Act 2006, using form SH06; resulting in a reduction in the share capital of the company. Alternatively, companies can buyback their own shares and hold these shares in treasury. Treasury shares can then be resold at a later date to allow companies to raise capital and increase shareholder interest.
If your company has a retiring shareholder and wishes to acquire their own shares, please do not hesitate to contact O’Reilly Stewart’s Commercial Team on 028 90 321 000 for expert advice.