Option for company to buy back its own shares

Certain businesses are required to have more shares issued than would normally be the case, for example a firm of financial advisers may have a capital requirement under the old FSA to have say £15,000 shares issued where a similar business would only have £100.  This means that the owner will have had to pay £15k into the business rather than £100, but if the requirement is no longer there, these funds may be extracted.  This is done via a procedure within the business and subsequently with Companies House.  There are some pre-conditions which must be met first:

1. There must be no restriction in the Articles of Association
2. the shares must be fully paid
3. full voting shares must remain after the distribution
4. the shares must be purchased out of retained profits

The process then proceeds as follows:

1. A board meeting needs to be convened where the contract to purchase and written resolution to reduce the capital will be presented
2. On approval the board meeting can be adjourned and eligible members sign to approve the resolution (for small businesses this can probably be done on the same day)
3. For approval of the resolution there must be approval from at least 75% of eligible voters, ie excluding the party to whom the payment is being made
4. The board meeting can then be reconvened to confirm written resolutions
5. The Contract to Purchase can be signed by the company and vendor
6. Payment must be made the following day
7. The written resolution must be filed within 15 days at Companies House
8. Companies House Form SH03 must be completed and sent to HMRC Stamp office as 0.5% stamp duty must be paid for all distributions over £1k
9. Companies House Form SH06 must also be completed
10. On return of “Stamped” SH03, both forms need to be submitted to Companies House within 28 days of the resolution
11. The copy of the contract to purchase shares must be kept for 10 years at the registered office

HMRC have recently updated their guidance and an update from Nichola Ross Martin explains these

This is an involved process and is only intended for general information.  There may be other considerations such as taxation in your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”