Company purchase of own shares

One of the mechanisms by which a company can eliminate a shareholder is through a company purchase of own shares. The legal basis for a company buying back its shares is in Companies Act 2006 (CA 2006) s 690 et seq. This article is not a treatise on the relevant company law but it is important that company law requires that ‘the shares must be paid for on purchase’ (CA 2006 s 691(2)). For both company law and tax purposes this is taken to mean that the shares that are bought back by a company must be paid for in full at the time of the buyback so there is no scope for the use of deferred consideration loan notes etc. in such transactions.

Generally speaking an exiting shareholder is likely to want his or her shares bought back at a pro-rated market...