Own Share Purchase Out Of Capital - Contract To Purchase

Companies may wish to “buy back” or purchase their own shares.

Use this contract for an own share purchase out of capital

This Own Share Purchase out of Capital - Contract to Purchase is for a private company wishing to purchase its own shares using capital.

It should be read in conjunction with “Own Share Purchase out of Capital - Guidance Notes.”

Legal requirement for a valid contract and approvals

In order for a private limited company to purchase its own shares, there must be a valid contract for the purchase of shares and an ordinary resolution must be passed to approve the contract.

There must also be a special resolution to approve the use of capital.

What the contract covers

This Contract to Purchase covers the key terms of the buyback, including:

• The parties and definitions.
• The sale and purchase of the shares.
• Representations and warranties given by the vendors and the purchaser.
• Notice provisions.
• Schedules covering (among other matters) the vendors, the number of shares sold and purchase price, and the company’s share capital immediately before and after completion.

Key details covered by the template

• The company purchasing the shares will be the purchaser, and its details will need to be completed at section 1.
• The document caters for up to three vendors, although more can be added in Schedule I. If more are added, their names must be added to the cover sheet and they must be given boxes for their signatures on page 7.
• If any or all of the vendors are not individuals, then the requirements for signature will have to comply with that body’s authorised signature requirements. The agreement is a simple contract, not a deed, and so the signatures do not require a common seal or a witness.
• The nominal value of the share referred to in Recitals A and B is the value of each share on the share certificate. This may be only a small amount (for example 1p, 10p or £1) and may be considerably less than the price paid per share. If the price paid per share is more than the nominal value, then the balance is referred to as the premium.
• If the vendor is a corporate body, then clause 3.4 should be retained; otherwise it should be deleted.
• Details for giving notice to each of the parties to the contract should be inserted at clause 6.
• The share capital of the company purchasing its own shares immediately before completion of the sale and purchase should be inserted at Schedule II, and the share capital of the company purchasing its own shares immediately after completion should be inserted at Schedule III.

Legal updates reflected

This Contract to Purchase has been updated to reflect the April 2013 changes to the Companies Act 2006, notably the move from special resolution to ordinary resolution for approval of the contract.

Own Share Purchase Out Of Capital - Contract To Purchase is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.