What are Redeemable Shares?
A limited company may issue shares which are to be redeemed or which may be redeemed at the option of the company or the shareholder. A private company does not require express authority in its articles to issue redeemable shares, although it may exclude or restrict its ability to issue shares by including a relevant provision in its articles. Redeemable shares may not be issued when the company does not have any non-redeemable shares in issue.
The directors will usually determine the terms of redeemable shares if they are authorised by the company’s articles or by an ordinary resolution.
Redeemable shares in a private company may be redeemed out of distributable profits, the proceeds of a fresh issue of shares made for the purposes of the redemption, or out of capital. Where shares are redeemed, they are treated as cancelled and the amount of the company’s issued share capital is lowered by the nominal value of the shares redeemed.