Company share buy-backs

Company share buy-backs are also commonly known as a company purchase of own shares. A company may decide to buy back their shares for a number of reasons including to return cash to shareholders or to provide for a shareholder exit.

The relevant legislation allows a company to purchase its own shares if its Articles of Association authorise it to do so. HMRC’s guidance is clear that to be valid, the terms of the purchase must provide for immediate payment. There are two parties to the transaction, the company making the purchase and the shareholder whose shares are purchased.

A private company limited by shares can purchase its own shares by passing an ordinary resolution with statements by a directors and auditor’s report confirming solvency. The company would be able to provide financial assistance for purchases of its own shares assuming it does not result in an unlawful reduction of capital.

A public limited company needs to apply for court approval for capital reduction and they are prohibited by CA06 from providing financial assistance for purchases of own shares.