Company Repurchase of Shares

Company Repurchase of Shares – ‘Share Buy-Back’

If a shareholder is leaving a company, or wishes to raise cash, one solution is for the company to repurchase the shares.

In many cases, share buyback is the most tax efficient way to buy out a shareholder. It also offers an option when other shareholders are unable or unwilling to buy out a departing shareholder, and is preferable to selling the shares to a party outside of the company.

During a share buyback, the departing shareholder receives the purchase price directly, as opposed to a ‘reduction of share capital’ where a reserve is created for distribution amongst the shareholders generally.

Other Reasons for Share Buybacks

Share buybacks can also be used to return any surplus cash within a company to its shareholders. If a sizeable business asset has been sold or if funds were raised for a project that failed to materialise, this cash can be returned to its shareholders by the company repurchasing the shares.
If your company operates an employee share scheme, such as an Enterprise Management Incentive scheme, a share buyback can be used to repurchase the shares of a departing employee.

Another reason a company might repurchase its shares is to improve its ratio of debt to equity to make the company more attractive to investors, or to enhance the return for its shareholders. This process is known as ‘increasing gearing’ and should be managed under expert legal guidance to ensure any existing financial arrangements are not breached.

Expert Advice on Share Buy Back and Other Options

At HCB Solicitors we are able to provide you with the expert advice you need to ensure share repurchases are conducted legally and efficiently courtesy of our highly specialist commercial lawyers.

We have extensive experience in all aspects of company law and in particular, shareholder transactions and use our broad knowledge of all available share schemes to guide you along the best route to suit the specific circumstances surrounding your situation. Contact us today for advice on any shareholder related matter.