Own Share Purchase Out Of Profits/New Share Issue/Cash – Contract to Purchase (ESS)

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

This Own Share Purchase Out of Profits/New Share Issue/Cash – Contract to Purchase (ESS) is for a private company wishing to purchase its own shares for the purposes of an employees’ share scheme using distributable profits, the proceeds of a new issue of shares or cash. It should be read in conjunction with "Own Share Purchase Out of Profits/New Share Issue/Cash – Guidance Notes."

In order for a private limited company to purchase its own shares there must be a valid contract for the purchase of shares and either an ordinary resolution must be passed approving the contract or there must be an ordinary resolution which approves multiple buybacks for the purposes of an employees’ share scheme.

This Own Share Purchase Out of Profits/New Share Issue/Cash – Contract to Purchase (ESS) contains the following Clauses:

1. Definitions
2. Sale and Purchase of Sale Shares
3. Representations and Warranties of the Vendors
4. Representations and Warranties of the Purchaser
5. Miscellaneous
6. Notice Details

This document is in open format. The document contains fields which must be completed. It also contains some wording options in square brackets which must be adjusted to suit your purposes.

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 3 Vendors although more can be added in Schedule I. If more are added, then 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. Please note that 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 (e.g. 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.

Clause 2.2 (Completion Date) needs to be amended according to whether there is an ordinary resolution approving the individual contract or an ordinary resolution approving multiple buybacks for the purposes of an employees’ share scheme.

Clause 2.4 gives the option of paying the Purchase Price in instalments. The ability to pay in instalments was introduced in April 2013 and only applies to purchases for the purposes of an employees’ share scheme.

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 of the sale and purchase should be inserted at Schedule III.

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