A purchase or buyback of shares by a company is a procedure which is commonly used by companies registered in England, Wales or Scotland, particularly in the following scenarios:

• As a means of returning surplus cash to shareholders.
  
  A purchase of own shares may be used as an alternative to a dividend payment. It may be more beneficial than a dividend payment because in some situations the tax treatment of the cash in the hands of the shareholder may be treated as a capital receipt rather than as income. If this tax benefit is sought, tax advice should always be sought from a professional advisor.
  
  
• To provide an exit route for a shareholder.
  
  If there is no willing buyer for the shares, perhaps because there is no market for the shares, or the existing shareholders don't want to sell to a third party, a purchase of own shares may be used to buy out one or more shareholders.
  
  
• Following the death of a shareholder.
  
  If the executors wish to raise capital to pay death duties or the beneficiary has no interest in the company, a purchase of own shares can be used to realise the value of the investment without the need to find a suitable buyer or for the other shareholders to find payment for the shares.

The purchase of own share procedure is set out in the Companies Act 1985. The purchase can be implemented out of distributable reserves, the proceeds of a fresh issue of shares or out of capital.

Failure to follow the correct procedures can result in the buyback being void and therefore unenforceable, and the Companies Act 1985 also imposes criminal penalties on both the company and its officers.

As this is a relatively complex procedure with a number of traps for the inexperienced, professional advice should always be sought when implementing this procedure.

Find out more about this procedure.

Our purchase of own shares out of distributable profits service includes:

• A full search of the public record at Companies House to obtain all relevant information.
  
  
• Ensuring that the company's articles of association contain appropriate power to purchase its own shares.
  
  
• Preparing the purchase agreement to be entered into between the vendor of the shares and the company.
  
  
• Preparing all necessary minutes and resolutions to approve the agreement, the purchase of own shares and, where necessary, to amend the articles of association to provide the company with power to effect the purchase.
  
  
• Preparation of Form G169.
  
  
• Filing of all relevant documentation with Companies House and arranging for the stamping of Form G169 by HM Revenue and Customs.

In addition, where the purchase is to be made out of capital we will also:

• Arrange for all required notices to be published in the Gazette.
  
  
• Prepare the necessary declaration of solvency (Form 173).
  
  
• File additional documentation at Companies House as required.

Next steps

Our fee for a purchase of own shares out of distributable profits starts at £575 + VAT (£675.63) and for a purchase of own shares out of capital starts at £925 + VAT (£1086.88). A purchase of own shares out of capital will also incur additional advertising costs. Stamp duty will also be payable.

For more information please contact our Corporate Legal Services team using the links in the box on the right or ORDER NOW.