Purchase of own shares

A useful way to return cash to shareholders is by way of a purchase by the company of its own shares – often referred to as a ‘buy-back’. This may have tax advantages for the shareholders concerned and it may provide a mechanism for removing individual shareholders in the event of a dispute or in the event that a shareholder has left employment and become a ‘leaver’ under the company’s articles.

This approach is not suitable for transferring non-cash assets to shareholders or for eliminating debts between company and shareholder however because the consideration for the shares must be paid in cash on completion and cannot be satisfied by the transfer of assets or by offsetting or waiving debts owing to the company.

The procedure for a company to purchase its own shares is strict and complex and legal advice should always be obtained. Failure to...