Purchase of Own Shares Agreement

When redeeming, various forms must be submitted to Companies House and HMRC. For almost all redemptions, stamp duty is payable on the purchase price of the shares at a rate of 0.5%, unless the repurchase price is £1,000 or less. A share purchase agreement should be used whenever a person or company sells or buys shares of a company from or from another person or business entity. A company may want to buy back shares in order to: The articles of association are the written by-laws of the company, which specify how the company is governed. Depending on the article, your items may prohibit the company from buying back shares. If this is the case, the articles of association will have to be amended to allow for a share buyback. To amend the articles, a special resolution must be passed, which must be submitted to Companies House within 15 days of the resolution being passed. A company may issue new shares to raise the funds needed to finance the buyback. There is no fixed period between the issuance of the shares and the redemption, but cautiously the repurchase should take place within a few months of the issuance of new shares to show a clear link between the issue of shares and the repurchase. The Companies Act 2006 (the “2006 CA”) does not require that the articles of association of a corporation contain a specific power for the corporation to purchase its own shares.

Nevertheless, the articles of association of the company must be reviewed to ensure that they do not restrict or prohibit the acquisition of own shares. If the articles of association of a company expressly restrict or prohibit redemptions, the articles of association may be amended by special decision to lift the prohibition or restriction. A limited liability company may make an over-the-counter acquisition of its own shares only if a formal contract has been approved by the shareholders prior to the purchase or, if the purchase is made for the purposes of or as part of an employee participation program, under a general power of attorney granted by the shareholders. In some cases, additional approvals and notices may be required if the purchase is to be financed by capital. While the agreement may be a very simple contract that provides for the Company to acquire the shares in question or, depending on the complexity of the matter, it could be an agreement under which the Company may, under certain conditions, have the right or obligation to acquire the shares in the future. It may also be necessary to include additional provisions in the contract to protect the interests of the company. As soon as a limited liability company decides to buy back certain shares, the corresponding financing for the shares is required. The repurchase must be made over the counter and is usually financed by the following: The Own Shares of Profits / New Issue / Cash sub-folder contains forms, guidelines as well as written and board resolutions for the purchase of shares from profits. There are letters to companies house that can be used as cover letters for the submission of the corresponding special resolution to Companies House. Each document in the Purchase of Own Shares from Profits/New Issue/Cash sub-folder is fully compliant with the Companies Act, 2006 and the documents reflect the April 2013 regulations. A buyback made through a takeover bid can be used to give shareholders a way out if a company intends to cancel the listing or listing of its shares.

This is more common when it comes to companies with shares traded on the AIM, but has also been used to cancel a listing of shares listed on the main market. Companies that offer several types of shares sometimes also have a series (class A, class B, class C, etc.) that can be worth different amounts of money. For example, 100 Class A common voting shares may not have the same value as 100 Class B common voting shares. If a limited liability company decides to repurchase shares, any amount paid for the purchase that is greater than the initial subscription of the shares will be taxed as a distribution of income. However, in certain situations where a company acquires its own shares, there is an exemption from income tax on distribution. Where appropriate, the share buyback will be treated as a capital transaction for the shareholder, which will be more efficient in certain circumstances (e.g.B. relief for entrepreneurs could reduce the effective tax rate to 10%). It is necessary that you seek specialist accounting advice regarding the tax on a share buyback and whether the company needs to apply for permission from HMRC. The articles and all other shareholder agreements should be reviewed to ensure that there are no pre-emption provisions or similar restrictions that could require shares to be offered to existing members before they can be transferred to another party, including the corporation. In the event of a trigger, these provisions should be respected, repealed or amended before the company makes a takeover. The shareholders` agreement (if applicable) may contain a “buy-back clause”. The buy-back clause generally creates a right for continued shareholders to purchase the shares frequently at a price determined by a third-party appraiser.

It could also grant the company redemption rights, so that in the event of a transfer, the company has the exclusive right to acquire those shares. The articles of association and any shareholder agreements must therefore be reviewed to ensure that the redemption is possible. Company records must be updated to reflect the destruction of shares after redemption or shares held by the corporation. In addition, a copy of the repurchase agreement shall be made available free of charge to shareholders at the registered office of the company for a period of at least ten years, from the date of completion of the acquisition of all shares arising from the contract or from the date otherwise specified in the contract. .