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Making Changes to Share Capital

Share Buyback Out of Profits, New Issue or Cash

What is a Share Buyback?

A share buyback, also known as purchase of own shares, is when a company purchases shares in itself from an existing shareholder 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 most commonly undertaken to return surplus cash to shareholders or facilitating shareholder exits. 

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 former. Templates for the latter procedure are provided at Share Buyback Out Of Capital.

Compliance with the Companies Act

This combination of templates provides the requisite documentation for Own Share Purchase Out of Profits and follows strict procedures to ensure compliance with the Companies Act 2006 sections 690-700, also 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.

What templates are required for a Share Buyback?

Before applying the sequential/combined templates below please download the Share Buyback Out of Profits 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:

Step1. Share Buyback Out of Profits/New Share Issue/Cash Board Minutes and Resolution is an ordinary resolution for the approval of the purchase, the option to use cash (in limited circumstances) and the ability to hold shares in treasury. It can be amended for use by a sole director. In addition to standard board meeting clauses, it provides for the presentation of a draft contract to purchase and ordinary resolution (which may be a written resolution) of the members of the company, and an optional clause providing for the issue of new shares.

Step 2. In order for a private limited company to purchase its own shares there must be a valid Share Buyback Contract to Purchase  and an ordinary resolution must be passed in order to approve the contract.

Step 3. The ordinary resolution can be passed either by the Own Purchase Out of Profits/New Share Issue/Cash Written Shareholders' Resolution or by a general meeting of shareholders and recorded by the Own Purchase Out Of Profits/New Share Issue/Cash - General Meeting Minutes. Please refer to the Guidance Notes for an explanation of these two different procedures for approval.

Step 4. 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.  

Step 5. Complete Statutory Forms & Stamp Duty

  • File SH03 (return of purchase of own shares) within 28 days.
  • Pay stamp duty (0.5% over £1,000).
  • File SH06 if shares are cancelled.

Share Buyback Out of Profits, New Issue or Cash is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.

Frequently Asked Questions

What approvals do we need before buying back shares from a shareholder? +
Two things before purchase: a written contract (or memorandum of its terms) between the company and the selling shareholder, and an ordinary resolution of the members approving it, passed before the contract is entered into. The seller's shares do not count in the vote. If passed at a meeting, the contract must be available for inspection for 15 days ending with the meeting date; with a written resolution it is sent to members with the resolution. The templates cover the full sequence.
Do we have to pay the shareholder in full straight away? +
Yes. The shares must be fully paid, and the company must pay for them on purchase; deferred consideration or instalments are not permitted, except for buybacks for the purposes of an employees' share scheme. If the company cannot fund the whole price at completion, the usual solution is to buy the shares back in tranches over time, with each tranche completed and paid for separately. The guidance notes explain how to structure that.
What do we file after the buyback, and is stamp duty payable? +
File form SH03 at Companies House within 28 days of the shares being delivered to the company. If the price exceeds £1,000, stamp duty of 0.5% (rounded up to the nearest £5) is payable and the SH03 must be stamped by HMRC, or self certified as exempt, before Companies House will accept it. If the shares are cancelled rather than held in treasury, also file form SH06 within 28 days. The set includes both forms and the covering letters.
Can the company keep the bought back shares instead of cancelling them? +
Yes, shares bought back out of distributable profits can be held in treasury rather than cancelled, letting the company resell or transfer them later without a fresh allotment. Otherwise the shares are cancelled on purchase, and a notice of cancellation on form SH06 goes to Companies House within 28 days. The Simply-Docs board resolution template includes the option to hold shares in treasury. Shares bought under the de minimis capital exemption cannot go into treasury.
What if we do not have enough distributable profits to fund the buyback? +
Three options. Fund it from the proceeds of a fresh issue of shares made for the purpose, keeping a clear link between issue and buyback. Use the out of capital procedure, which needs a directors' solvency statement, an auditor's report, a special resolution and public notice; see the Share Buyback Out of Capital templates. Or, for small amounts, the de minimis exemption allows capital buybacks up to the lower of £15,000 or 5% of fully paid share capital per financial year, if the articles authorise it.
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Alternative Share Buyback Templates

Share Buyback Set of Templates

Employee Share Scheme Templates

All Making Changes to Share Capital

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