Guidance Notes: Own Share Purchase Out Of Capital
There are two types of situations when a company can buy its own shares:
- Purchase of own shares.
- Redemption of redeemable shares.
What an own share purchase is and how it can be funded
A purchase of own shares is when a company purchases shares in itself from an existing shareholder and the shares purchased are not redeemable shares.
A company can purchase its shares:
- Out of profits.
- Out of the proceeds of a fresh/new issue of shares.
- Using cash (in limited circumstances).
- Out of capital.
Scope of these Guidance Notes
This document deals with the procedures that must be followed by private limited companies in order to purchase their shares out of capital.
It covers the so called “off market purchase”, and does not deal with public companies (market purchase).
This document deals with own share purchase. For redemption of redeemable shares please see “Redemption out of Profits/New Share Issue - Guidance Notes” and “Redemption out of Capital - Guidance Notes”.
Legal updates reflected
These Guidance Notes reflect the April 2015 changes to the Companies Act 2006, which in turn clarify the operation of certain provisions of the Companies Act (Amendment of Part 18) Regulations 2013.
They also reflect the July 2021 introduction by HMRC of mandatory electronic stamp duty processes to replace their previous physical stamping system.
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