Retirement: Purchase of own shares - Signpost

This is a freeview 'At a glance' guide.

At a glance

  • A retiring director or shareholder may wish to dispose of his shareholding in a company.
  • The remaining shareholders may not have the cash to buy his shares.
  • The company may execute a purchase of its own shares. This cancels the shares and provides an exit route for the shareholder.
  • See Case Study: POS: Buyout retiring shareholder

There are two ways that a company may execute a purchase of own shares.

A purchase of own shares out of capital

A purchase of own shares out of distributable reserves

Purchase of own shares and tax

  • When the qualifying conditions are met, the proceeds of a share buy-back are treated as capital.
  • It is easy to disqualify to ensure Income Tax treatment: that might be favourable in the case of a basic rate taxpayer.
  • Tax treatment is discussed further in the guides above.


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