Under a share buyback the company acquires shares in itself from existing shareholders. The shares are then (generally) cancelled and the issued share capital of the company is reduced accordingly.
This article describes the process to be followed for private companies wishing to carry out a buyback of shares out of distributable reserves.
In certain circumstances private companies can also carry out share buybacks out of capital, where they have exhausted available reserves. However, a buyback out of capital requires the directors to swear a declaration of solvency and also requires notice to be given to creditors in the press and is therefore more complex and lengthy.
It is important that a share buyback is carried out using the correct procedure under the Companies Acts as failure to comply with the specific requirements can lead to the buyback being declared invalid and, potentially, fines on directors. Broadly, the procedure to follow includes:
It should be noted that the company must pay in full for the shares being bought back and this can sometimes prove an issue for companies from a cash flow perspective. If that is the case then the company may need to buy the shares back in instalments over a period of time.
We can assist a private company wishing to carry out a share buyback out of distributable reserves by guiding a company through the procedures and preparing the appropriate documentation outlined above. We are also able to advise private companies on the procedures and documentation required for buybacks out of capital.
For further information regarding this article, please contact Daniel McCormack.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.