Company Own Share Purchase

There are various situations where a private company may find it beneficial to buy-back its own shares. These include: retirement or death of a shareholder; breakdown in shareholder relationship; under an employee share incentive scheme or other similar or related circumstances.

On the retirement or death of a shareholder, rather than the remaining shareholders acquiring the holding of the party concerned, it can be attractive for the company to purchase the shares. The other shareholders may not wish to increase their investment in the company, but be equally reluctant to contemplate the involvement of an "outside" third party. A purchase of own shares by the company may provide the best solution, by enabling the outgoing party to liquidate his stake in the company.

Where there is a breakdown in the relationship between shareholders, often the solution is to create an exit opportunity, so that the dissenting party can go his own way in exchange for a fair value for his shares. The remaining shareholders may not be willing or able to buy out the other party at that time using their own funds.

Under employee share incentive schemes an option for the company to re-purchase a party's shares on ceasing to be an employee is quite common.

The Companies Acts 1985 and 2006 set out a number of criteria and detailed procedures that must be followed in order for a company to lawfully purchase its own shares. Also consideration will need to be given to the taxation implications of undertaking an own share purchase.

We can ensure that you comply with these criteria and procedures, and that you are aware of the taxation consideration that you should discuss with your tax adviser.

For further information, please contact Simon Dakin or one of the team on 0115 9 100 200 or email enquiries@actons.co.uk.