Share buybacks: What you need to know

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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.

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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

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About Steven Collings


Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.


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05th Feb 2013 19:11

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.


Thanks (6)
06th Feb 2013 12:32

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

Thanks (0)
06th Feb 2013 16:23

falgging this thread

For future reference.

Thanks (0)
07th Feb 2013 09:21

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.

Thanks (1)
By tonyarm
to John Stokdyk
08th Jun 2017 17:26

Where is this "Share buyback" link at the bottom of the article?

Thanks (0)
09th Feb 2013 12:36

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??

Thanks (1)
14th Feb 2013 08:59

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.

Thanks (0)
to MJShone
24th Mar 2014 08:09

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

Thanks (0)
By Tickers
14th Jan 2014 14:29

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?

Thanks (0)
By rdeb
10th Feb 2018 07:29

A £168K loan I made to a company was converted to shares, accounted for on the Balance Sheet as £167,948 in a 'Share Premium Account' in Capital & Reserves. In parallel, I was issued 52 ordinary shares at £1 nominal value and made a director. A few years later, I resigned due to disagreements and it was agreed that I would be reimbursed the full £168K.
In the company’s Articles of Association under ‘Purchase of own shares’ it specifies: “whether out of its distributable profits or out of the proceeds of a fresh issue of shares or otherwise.”
There are distributable profits but not enough to reimburse the full amount. The four other shareholders cannot purchase my shares as they don’t have the money.
Is it only through distributable profits that I can get reimbursed? Can the amount in the Share Premium Account be converted back into a loan of which the company will reimburse me over period of time? Any other ways to recoup my money?

Thanks (0)