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Buy Back Of Shares Procedure Notes

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Buy-back of Shares: Procedure??Out of Profits or Fresh Issue p.200 Overview Shares are cancelled (s.706(b)(i)) Issued share capital decreases Voting control may be altered Create/increase a capital redemption reserve Reduce share premium account (if any paid on buyback or financed by a fresh issue) Conditions Permissible under s.692(2) if: (a) Co.'s Articles don't prohibit it (s.690(1)) (b) Shares are fully paid (s.691(1)) (c) Shares are paid for by the Co. at the time of purchase (s.691(2))

A contract is entered with the S'holder whose shares are being bought. This contract must be approved by the S'holder by SR at GM or WR (s.694(2))

Before the BM

1. Check the Articles for a restriction on the power to buy-back under s.690 (MA silent; TA35 permits)

2. Check shares are fully paid (s.691)

3. Check accounts within 3 months to ascertain available profits

Out of Capital???

Overview Offends maintenance of capital It is an exception (see the notes) Expensive (advertise, auditors...) Protracted and lengthy Statement of solvency required Creditors may potentially bring court action under s.721 to cancel the buy-back

Conditions Permissible under s.709(1) if: (a) Articles don't prohibit it (s.690(1)) (b) Shares are fully paid (s.691(1)) (c) Shares are paid for by the Co. at the time of purchase (s.691(2)) (d) Auditors prepare a report stating they know no grounds that would prevent Ds from making statement (e) Ds make a statement of Co.'s solvency for the next 12 months (s.714) at least 1 week before the GM (s.716) If Co. is wound up as a result of a faulty D's Statement within 1 year Ds and Seller are financially liable s.76 IA 1986. Ds' subject to criminal sanctions under s. 715 for breach of s.714 Same Contract Before the BM

1. Check the Articles for a restriction on the power to buyback under s.690 (MA silent; TA35 permits)

2. Check shares are fully paid (s.691)

3. Check accounts within 3 months to ascertain available profits

4. Commission an auditor's report and make a statement of solvency

Reduction in??

Overvie Only for private company (s.64 Reclassify shares into profit Existing share capital is treated is 'distributable profit') Avoids delay and expense of a

Conditions Permissible if: (a) Articles do not prohibit the r (s.641(6)) (b) Ds make a statement of sol the next 12 months (s.714) the GM (s.642(1)(a)) If Co. is wound up within 1 year financially liable s.76 IA 1986. sanctions

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