Redemption of Shares out of Profits and New Issue Templates
Redeemable shares can be redeemed either at the option of the company or at the option of the holder, depending on the terms on which they were issued. The Companies Act 2006 imposes strict rules on how a company may redeem or purchase its own shares out of profits, and on any related new issue of shares.
This section brings together guidance and core board and filing templates for a redemption of shares out of profits, with the option to combine the redemption with a new issue to maintain or adjust the company’s capital structure.
When to Use These Templates
Best for:
- Private companies redeeming redeemable shares out of distributable profits
- Transactions where a redemption is combined with a new issue of shares
- Situations where the company needs clear documentation and filings for a redemption out of profits and associated capital changes
Each template in this section is drafted to comply with the Companies Act 2006 requirements for this type of transaction.
What This Section Covers
- Guidance on the legal procedure for redeeming shares out of profits and any linked new issue of shares
- Board resolutions to approve the redemption and, where relevant, a new issue
- The Companies House filing (form SH02) to record the redemption and any associated share capital changes
- A covering letter to accompany the filing to Companies House
🔀 Document Toolkit: Typical Sequence (may vary)
- Start with the Guidance Note: Redemption Out Of Profits/New Share Issue, which explains the legal requirements, use of distributable profits and how a redemption can be combined with a new issue.
- Use Redemption Out Of Profits/New Share Issue – Board Resolutions to approve the terms and timing of the redemption, any related new issue and the Companies House filings.
- Complete CHF - SH02 – Notice Of Consolidation Sub-Division Redemption Of Shares Or Re-Conversion Of Stock Into Shares to notify Companies House of the redemption and any related capital changes, and send it with Redemption Out Of Profits/New Share Issue - Letter To Companies House as the covering letter.
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Frequently Asked Questions
What is the difference between redeeming shares and buying them back?
Redemption applies only to shares issued as redeemable: the exit terms were built in when the shares were created, and the shares are bought in according to those terms. A buyback is a negotiated purchase of ordinary (non-redeemable) shares under a contract approved by the shareholders at the time. If your shares are redeemable, use this section's redemption templates; if not, use the Share Buyback template sets instead.
Do shareholders have to approve a redemption of shares?
Generally no fresh approval is needed at the time. Because the redemption terms were fixed when the redeemable shares were issued, the Companies Act does not require a further shareholder resolution to redeem in accordance with those terms; the board resolves to implement it. Check the articles and the terms of issue for any extra conditions. The Redemption Out Of Profits/New Share Issue Board Resolutions template records the directors' approval of the terms, timing and filings.
How can a redemption be funded?
Out of distributable profits or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; a private company can also use capital under the separate strict procedure covered by the Redemption of Shares out of Capital templates. Only fully paid redeemable shares can be redeemed, and this section supports the profits or fresh issue routes, including combining the redemption with a new issue to maintain or adjust the capital structure.
What do we file at Companies House after redeeming shares?
Notice of the redemption on form SH02, with a statement of capital, within one month of the redemption. The redeemed shares are treated as cancelled and the issued share capital is reduced by their nominal value. This section includes the SH02 and the Redemption Out Of Profits/New Share Issue Letter To Companies House as the covering letter; if a linked new issue took place, the allotment has its own separate filing requirements.
Can we redeem shares that were not issued as redeemable?
No. Only shares issued as redeemable, and fully paid, can be redeemed; you cannot convert an existing non-redeemable share into a redeemable one simply to redeem it. For non-redeemable shares the routes are a buyback (out of profits or capital) or, in restructuring situations, a reduction of capital. If you want redeemable shares available for future exits, that is a question of issuing a new redeemable class, which touches the reclassification and allotment territory covered elsewhere.