Share Buyback Rule Changes

April 2013
With effect from 30th April 2013, Part 18 of the Companies Act 2006 has been amended by Regulations. This changes the regime by which private limited companies carry out share buybacks. The objective of the changes is to make it easier for companies to buy back shares from leaving employees who are members of an employees’ share scheme.

(These changes have received rather less press than the forthcoming employment law changes relating to the new ‘employee shareholder’ status. The employee shareholder scheme is likely to be introduced this Autumn. An employee shareholder will receive shares in the company in return for giving up certain employment protection rights. We will cover this in more detail in future newsletters when more information is available.)

Some of the changes will cover all share buybacks, whereas some will only be applicable to share buybacks for the purposes of an employees’ share scheme.

The changes affecting ALL share buybacks are as follows:-

• At present, a shareholders’ special resolution is required to approve the ‘buyback’ contract. Following the implementation of the Regulations, only an ordinary resolution of shareholders will be required.

• If the Articles of Association permit, a buyback can be made using cash, provided the amount in any financial year is the lower of £15,000 or 5% of the company’s share capital.

• Private companies will be allowed to hold shares in treasury (i.e. they will not be required to cancel them following the buyback) if the shares are bought using distributable profits or cash.

The changes which will apply only to buybacks for the purposes of an employees’ share scheme are:-

• Shareholders will be able, by ordinary resolution, to approve multiple buybacks in advance, rather than authorising each individual buyback.

• Private companies will be permitted to pay for the shares in instalments.

• The procedure for using capital to buy back shares will be simpler where the buyback is for the purposes of an employees’ share scheme. The directors must provide a solvency statement, and the shareholders give approval by passing a special resolution. (The usual requirements – director’s statement, auditor’s report, advertisement etc – will not apply.)

Simply-Docs will be updating the relevant documents in the ‘Share Capital and Profits’ folder and adding new documents to take account of the changes. The updates and additions will appear during May.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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