Share buyback

We are experienced in the commercial and legal intricacies of private company share buybacks. A share buyback is in effect a method for a company to repurchase it's own shares.

By leveraging our expertise, we can help you save time and money and achieve your business objectives.

Why companies repurchase shares

There are a number of reasons private limited companies may think about repurchasing shares. We are experienced in advising on buybacks as a result of :-

• Management exits - structured departures for retiring directors or managers

• Shareholder disputes - resolution of conflicts through share purchases

• Company restructuring - reorganisation of ownership structure

• Investment preparation - cleaning up share structure before new investment

• Succession planning - facilitating orderly ownership transition

• Employee departures - including issues relating to employee share scheme.

How we can help

Whether you're a shareholder considering selling your shares or a company looking to repurchase shares, our team can assist you with:

• Structuring the deal - advising on the most suitable share buyback structure, including share redemptions, share purchases, and employee share buybacks.

• Drafting and reviewing documents - such as shareholder agreements, board resolutions, and share buyback agreement.

• Tax implications - working with your tax advisors we Identify and mitigate potential tax implications (capital gains tax, income tax, and stamp duty land tax) for both the company and the shareholders.

• Regulatory compliance

Basic company legal requirements

• buyback must comply with Part 18 of the Companies Act 2006

• company must have sufficient distributable profits or use capital

• company articles must not prohibit buybacks

• shares must be fully paid

• a Special resolution (75%) is needed unless private company buying under 'small buyback' exemption

• payment must be made on purchase

• directors' solvency statement needed for capital buybacks

Tax Clearance

Advance clearance is not strictly required but advisable. It helps ensure sellers get favourable and confirmed capital gains tax treatment. Without clearance, payment could be treated as income not capital. Clearance usually takes around 30 days to obtain

Legal issues with company repurchase of shares

There are a number of legal considerations that must be taken into account when a private company repurchases its own shares. These include:

• Shareholder approval - a private company must obtain approval from its shareholders before it can repurchase its own shares. This is typically done by a special resolution.

• Capital maintenance - a private company must ensure that its capital is sufficient after a share buyback, so net assets should not be less than share capital.

• Tax implications - to qualify for tax benefits the selling shareholder needs to have owned the shares for at least 5 years, there needs to be a plausible business reason for the buyback and HMRC must be satisfied the buyback is not primarily to avoid tax.

Potential complications

• Impact on company finances - Potential strain on working capital, impact on company's ability to pay dividends and possible impact on relationships with lenders/creditors

• Changes to shareholding structure and control - potential cause of friction with minority shareholders and employee motivation if used for employee shares

How can a share buyback be funded?

A buyback has to be funded from distributable reserves (post tax profits) and the price can be set at any amount as long as acceptable to the selling shareholders. If the buyback is not funded from distributable reserves, HMRC may refuse advantageous tax treatment.

There are some ways around the distributable reserves problem if a company does not have funds in the bank. Options include :-

• Issuing new shares to fund the buyback.

• A staged buyback – where payment for the shares is agreed as being due from future distributable reserves i.e future profits. There are obvious risks with this for the selling shareholder and protections such as a guarantee and other methods will generally be needed.

Please do call or email to discuss how we can help you or to find out more about us.