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 process whereby undistributable capital reserves are reduced without the need for a court order is possible following Companies Act 2006.
- See Purchase (repurchase) of own shares – out of capital
A purchase of own shares out of distributable reserves
- A simpler procedure to the purchase of your own shares out of capital, again made easier by Companies Act 2006, see Purchase (repurchase) of own shares.
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.