Shares Buy Back
UK Private Company Share Buyback Requirements
1. Authority to Buy Back Shares
• The company must check its Articles of Association to ensure they do not prohibit share buybacks. If necessary, they may need to be amended.Source: mfmac.com
2. Types of Buybacks
• Off-Market Purchase: Private companies usually conduct off-market purchases, which means shares are bought outside of a stock exchange.Source: mfmac.com
3. Funding the BuybackA company can fund the buyback using the following methods:
• Distributable Profits: Buyback can be financed from retained profits.
• Proceeds from a New Share Issue: New shares can be issued to raise funds for the buyback.
• Capital: If distributable profits are insufficient, the company can use capital but must follow a strict process including:
• A director’s solvency statement.
• Auditor confirmation.
• Public notice and filings.De Minimis Exemption: Companies can buy back up to the lower of £15,000 or 5% of the company’s share capital in a financial year without the full capital payment procedure.
Source: ouryclark.com
4. Buyback Contract
• A formal buyback contract must be drawn up, outlining the terms of the share purchase.
• Shareholders must approve the contract through an ordinary resolution.Source: mfmac.com
5. Payment for Shares
• The company must ensure that shares are fully paid at the time of purchase.
• Deferred payments or installments are not generally allowed.Source: accaglobal.com
6. Post-Buyback Actions
• Shares can either be canceled or held in treasury, depending on the funding method used.
• The company must submit necessary filings such as Form SH03 (Return of Purchase of Own Shares) to Companies House within set deadlines.Source: ouryclark.com
7. Tax Implications
• The treatment of buyback proceeds as capital gains (potentially qualifying for Business Asset Disposal Relief) or as income distributions depends on the buyback’s circumstances.
• Seeking tax advice is recommended to avoid unexpected liabilities. Of course it is.Source: gabyhardwicke.co.uk