Company Buy-Back of Own Shares - Change in Legislation
The Nuttall Review on Employee Ownership found that companies seeking to utilise direct share ownership faced regulatory burdens and restrictions when buying back shares and on the ability of private companies to hold shares in treasury. New legislation has been introduced, effective ftrom 30 April 2013, designed to simplify the process for buy back of shares. The new legislation changes Part 18 of the Companies Act 2006 and will make it easier for companies to buy back shares from employees leaving who were members of an employees’ share scheme.
The regulation will bring about a number of changes, changes to ease share buybacks are:
• Only an ordinary shareholder resolution will be needed as opposed to the current special resolution to approve a share buyback;
• Provided that a company’s Articles of Association allow, Section 692 of the Companies Act 2006 will include the following limits:
“(1) A private limited company may purchase its own shares—
(a) out of capital in accordance with Chapter 5, and
(b) with cash (if authorised to do so by its articles) up to an amount in a financial year not exceeding the lower of—
(i) £15,000, or
(ii) the value of 5% of its share capital.
(1A) If the share capital of the company is not denominated in sterling, the value in sterling of the share capital shall be calculated for the purposes of subsection (1) (b)(ii) at an appropriate spot rate of exchange.
(1B) The rate must be a rate prevailing on a day specified in the resolution authorising the purchase of the shares.”
• Private companies will be allowed to hold shares in treasury if they were bought out of distributable profits or cash.
To view our Technical Factsheet on Company Buy-Back of own shares, please click here.