Share buybacks: What you need to know

It is not uncommon to hear of companies purchasing their own shares from shareholders, explains Steve Collings.

Typical scenarios include shareholders who wish to sell their shares in a company where other shareholders may not wish to buy them or where the shareholders are unable to raise the cash to purchase them.

The accounting for such buy-backs can be tricky and there is a whole host of legalities to consider - some of which are obvious whereas others not so.  This article will take a look at how the mechanics of accounting for such buybacks works and the legal considerations that should be made.

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  • Companies Act 2006
  • Accounting issues
  • Share buy-back at a premium
  • Shares purchased out of a fresh issue of shares
  • Permissible capital payments
  • Conclusion

Continued...

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Comments
JAADAMS's picture

Further details...    6 thanks

JAADAMS | | Permalink

About a year ago I wrote an article titled Share Buybacks - Get the Details Right.

>> it was written more from the company law stance with the following comment/ headings

'The article that follows is in the form of a checklist that condenses the technical requirements under the following basic headings:

  • Funding a share buy back
  • Tax position
  • Conditions for CGT treatment
  • After purchase
  • Company Law Conditions
  • Final Points

 >>> you might find that it adds to Steve's article.

 

Capital reduction or purchase

henryg_1 | | Permalink

Capital reduction or purchase of own shares? Assuming circumstances permit either.

falgging this thread

Martin B | | Permalink

For future reference.

John Stokdyk's picture

Try bookmarking this page too    1 thanks

John Stokdyk | | Permalink

If you click on the "share buyback" link at the bottom of the article, it will take you to our share buyback tag page, which collects previous articles and Any Answers threads on the subject - including the Get the details right article that Jennifer highlighted above.

Taken as a group, they should cover the main points you might need to consider in these situations. And if they don't try posting a question in Any Answers, and including "share buyback" in the Tags field when you post it.

Thanks for your interest in this article, and the feedback.

I have a client who has an    1 thanks

Tina Edwards | | Permalink

I have a client who has an outstanding bill to their accountant and the accountant has said he would like shares in setttlement of his bill?  Is this ok??

Accounting for share buybacks

Grand Vizier | | Permalink

I have read the very useful article by Steve Collings. However, I am filling in my company's Tax and Accounts Return Service form and I cannot see anywhere to make an entry for a capital redemption reserve.

It is a very small company (turnover about £25K), which had three director/shareholders with 5,000 shares of £1 each. In 2011, one wanted to leave and the company purchased her shares for £2,700. This was approved by special resolution.

The P&L account had a negative balance, so the article suggests that this buy-back was financed out of capital.

Does anyone know how I should present this transaction in the accounts? Does the advice given by Steve Collings only apply to larger companies?

Many thanks.

Share buy back nil consideration

Tickers | | Permalink

Does anyone know what the implications are for the company when the buy back their shares for a nil consideration?

Capital Redemption

ndnewman | | Permalink

Hi, Did you get an answer to your message? I am in the same situation and not sure how to get round this. Regards Nick