Trustpilot
ISO 27001 Certified
Welcome to Simply-Docs
Business
Employment
Health & Safety
Property
Samples & Free
Corporate
Making Changes to Share Capital

Share Buyback Out of Capital

What is Own Purchase of Shares Out of Capital?

An own share purchase or share buyback out of capital, also known as an ‘off market purchase’, is when a company purchases its own shares using its share capital rather than profits or reserves and the shares purchased are not redeemable shares, templates for which can be downloaded from Redemption of Shares Out Of Profits. For private limited companies, this is typically undertaken when there are insufficient distributable profits to fund the buyback, often to facilitate shareholder exits or restructure ownership.

There are two main methods and processes for share buybacks; Out of profits, cash or the proceeds of a new issue of shares or out of capital. The templates listed below provide for the latter. Templates for the former procedure are provided at Own Share Purchase Out of Profits, New Issue or Cash.

Compliance with the Companies Act?

This combination of templates provides the requisite documentation for Own Share Purchase Out of Capital and follow strict procedures to ensure compliance with the Companies Act 2006, reflecting April 2013 Regulations and the changes made to the share buyback process by the Companies Act 2006 (Amendment of Part 18) Regulations 2015.

They have been drafted, regularly reviewed and kept up-to-date by experienced corporate lawyers. These share purchase/buyback documents have been and are being continually applied by solicitors, accountants, finance directors, company secretaries and business owners and managers.

Which templates are required for a Share Purchase Out Of Capital?

Before applying the sequential/combined templates below please download the Own Share Purchase Out Of Capital Guidance Notes. These will help you follow and complete the share purchase / buyback procedures.

The list of documents provides a set of templates for Employees Share Schemes (ESS) as well as the standard set for share buybacks which include the following:

Own Share Purchase Out Of Capital - Board Resolutions is a set of resolutions for approving the purchase of a company’s own shares using capital, in accordance with the Companies Act 2006. It can be amended for use by a sole director. In addition to standard board meeting clauses, it provides for the directors’ solvency statement, the presentation of a draft purchase contract, a special resolution of the members (which may be a written resolution) approving the use of capital, and references to the filing and public notice requirements.

In order for a private limited company to purchase its own shares there must be a valid Own Share Purchase Out Of Capital - Contract To Purchase  and an ordinary resolution must be passed in order to approve the contract. The payment out of capital must also be approved by the shareholders. A special resolution is required for this.

The directors must make a statement in the prescribed form supported by an auditor’s report. The Directors’ Statement is a statement of the solvency of the company. Please refer to the Own Share Purchase out of Capital – Directors’ Statement which contains the required wording.

The ordinary resolution can be passed either by the Own Share Purchase Out Of Capital - Written Resolutions or by a general meeting of shareholders recorded by the Own Share Purchase Out Of Capital - Minutes. Please refer to the Guidance Notes for an explanation of these two different procedures for approval.

Within the week following the passing of a special resolution regarding the use of capital, the company must publish an Own Share Purchase out of Capital – Public Notice of the proposed payment in the Gazette and must either arrange for a similar notice to be published in a national newspaper or give written notice to that effect to each of its creditors. 

Having followed the procedures and completed the above documents, download the cover letters to Companies House and Companies House form SH03 notifying Companies House of the share buyback, and Companies House form SH06 for notification of cancellation of the repurchased shares when those shares are not to be held in treasury.  

Share Buyback Out of Capital is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.

Frequently Asked Questions

When can a company fund a share buyback out of capital? +
Only a private company can, and typically only when distributable profits and the proceeds of any fresh share issue are insufficient, since capital can fund only the shortfall (the permissible capital payment). It is the strictest buyback route, with a directors' solvency statement, an auditor's report, a special resolution, public notices and a fixed payment window. Read the Own Share Purchase Out Of Capital Guidance Notes before starting; if profits cover the price, use the simpler out of profits set instead.
What are the directors' statement and auditor's report for? +
The directors' statement specifies the permissible capital payment and states that, after full inquiry, the directors are of the opinion the company can pay its debts immediately after the payment and will continue as a going concern for the following year, taking contingent and prospective liabilities into account. The company's auditor must report that the payment is properly determined and that nothing indicates the directors' opinion is unreasonable. Both must be available to members when the resolution is passed, or it is ineffective.
What is the timetable for a buyback out of capital? +
Tight and fixed. The special resolution approving the payment must be passed on, or within a week after, the date of the directors' statement. Within the week after the resolution, publish a notice in the Gazette and either a notice in an appropriate national newspaper or written notice to every creditor, and file the statement and auditor's report at Companies House. The payment itself must be made no earlier than five weeks and no later than seven weeks after the resolution. The guidance notes include the timeline.
Can shareholders or creditors object to the payment out of capital? +
Yes. Any member who did not consent to or vote for the resolution, and any creditor, can apply to court to cancel it, which is why the statute builds in the public notices and bars payment until at least five weeks after the resolution. The court can confirm, cancel or vary the arrangements. This is a key reason the notices must be done properly and on time; skipping them exposes the whole transaction. The template set includes the public notice and creditor notice options.
Is there a simpler route for a small buyback out of capital? +
Yes, two. The de minimis exemption allows buybacks out of capital up to the lower of £15,000 or 5% of fully paid share capital in a financial year, without the full Chapter 5 procedure, if the articles authorise it; useful for nominal value buybacks from leavers. Separately, buybacks for an employees' share scheme can use a simplified special resolution plus solvency statement route. For anything else, the full procedure in this section applies.
Corporate Buy Only £38.50 + VAT!
Unlimited Downloads for One Year
No Auto-Renewal

Alternative Share Buyback Templates

All Making Changes to Share Capital

Simply-4-Business Ltd Registered in England and Wales No. 4868909, 20 Mortlake High Street, Mortlake, London SW14 8JN

Trustpilot
Top