Company Share Buy-Backs

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 or 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 buy back, will 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. The company will also 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. This is 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 also need to be put into place, setting out the terms of the agreement. Once this is 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 for the business.