Share buybacks: What you need to know

Audit and Technical Partner
Leavitt Walmsley Associates Ltd
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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.

Register with AccountingWEB for free to read the rest of the article, which includes:

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

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Further details...

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 positionConditions for CGT treatment After purchase Company Law ConditionsFinal Points

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

 

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

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falgging this thread

For future reference.

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Try bookmarking this page too

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.

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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??

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Accounting for share buybacks

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.

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Capital Redemption

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

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Share buy back nil consideration

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

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