Redemption of Shares out of Capital Templates
Redeemable shares can be redeemed either at the option of the company or at the option of the holder, depending on the rights attached to those shares. Where a company redeems shares out of capital, the Companies Act 2006 imposes particularly strict requirements, including director approvals, shareholder approvals, statutory statements and public notice.
This section brings together guidance and supporting templates for a redemption of shares out of capital, including board and shareholder approvals, the directors’ statement, Companies House filings and the required public notice.
When to Use These Templates
Best for:
- Private companies redeeming redeemable shares using capital where distributable profits or the proceeds of a fresh issue are not sufficient.
- Situations where a company needs a clear, documented process for a capital-funded redemption, including statutory notices and filings.
- Transactions where directors and shareholders must be comfortable that the company will remain solvent after the proposed payment out of capital.
What This Section Covers
- Guidance on the legal procedure for a redemption out of capital and the conditions that must be met.
- Board resolutions to approve the proposed redemption out of capital and related steps.
- Shareholder approvals by written resolution or at a general meeting.
- The Redemption Out Of Capital – Directors’ Statement, in the Companies Act 2006 prescribed format.
- The Redemption Out Of Capital – Public Notice to be published, for example, in the Gazette.
- Companies House filings (form SH02) and two covering letters for submissions to Companies House.
🔀 Document Toolkit: Typical Sequence (may vary)
- Start with Guidance Note: Redemption Out Of Capital, which explains the statutory conditions, timetable and documentation required for a redemption funded out of capital.
- Use Redemption Out Of Capital – Board Resolutions to document the directors’ approval of the redemption, their consideration of solvency and their decision to proceed with the capital procedure.
- Obtain shareholder approval using either Redemption Out Of Capital – Written Resolution or Redemption Out Of Capital – General Meeting Minutes, depending on whether you proceed by written resolution or meeting.
- Prepare the directors’ solvency statement using Redemption Out Of Capital – Directors’ Statement and arrange publication of the Redemption Out Of Capital – Public Notice in the required form.
- File the necessary documents at Companies House using CHF - SH02 – Notice Of Consolidation Sub-Division Redemption Of Shares Or Re-Conversion Of Stock Into Shares, together with Redemption Out Of Capital – 1st Letter To Companies House and Redemption Out Of Capital – 2nd Cover Letter To Companies House as appropriate.
- Guidance Note: Redemption Out Of Capital
- Redemption Out Of Capital – Board Resolutions
- Redemption Out Of Capital – General Meeting Minutes
- Redemption Out Of Capital – Written Resolution
- Redemption Out Of Capital – 1st Letter To Companies House
- Redemption Out Of Capital – 2nd Cover Letter To Companies House
- CHF - SH02 – Notice Of Consolidation Sub-Division Redemption Of Shares Or Re-Conversion Of Stock Into Shares
- Redemption Out Of Capital – Directors’ Statement
- Redemption Out Of Capital – Public Notice
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Frequently Asked Questions
When would a company redeem shares out of capital?
When redeemable shares fall due for redemption but distributable profits and the proceeds of any fresh issue are not enough to fund it. Only private companies can pay out of capital, and only for the shortfall, under the strict Chapter 5 procedure: directors' statement, auditor's report, special resolution, public notice and a fixed payment window. Start with the Guidance Note: Redemption Out Of Capital, and if profits cover the redemption use the simpler out of profits templates instead.
What approvals and statements does a redemption out of capital need?
Four elements. The directors make a statement in the prescribed form specifying the permissible capital payment and their solvency opinion covering the year ahead, supported by an auditor's report. The shareholders then pass a special resolution on, or within a week after, the date of the statement, with the statement and report made available to members, otherwise the resolution is ineffective. Shares being redeemed do not carry eligible votes. The template set includes each document, with written resolution and general meeting versions.
Do we really have to publish a public notice?
Yes. Within the week after the special resolution the company must publish a notice in the Gazette stating the approved payment out of capital, the amount and the resolution date, and in the same week either publish a similar notice in an appropriate national newspaper or give written notice to each creditor. These notices let creditors and dissenting members exercise their right to apply to court before payment. The Redemption Out Of Capital Public Notice template provides the required form.
When can the redemption payment actually be made?
No earlier than five weeks and no later than seven weeks after the date of the special resolution. The floor exists so creditors and non-consenting members can apply to court to cancel the resolution before money leaves the company; the ceiling stops stale solvency statements being relied on. Diarise the window when you pass the resolution, because a payment outside it is not made in accordance with the Act. The guidance note includes the full timeline.
What are the filings for a redemption out of capital?
Three strands. File the special resolution at Companies House within 15 days. Deliver the directors' statement and auditor's report to Companies House by the time the first notice is published, and keep them available for inspection. After the redemption itself, file form SH02 with a statement of capital within one month. This section includes the SH02 and two covering letters to Companies House for the different stages of the process.