Buyback Of Shares - Business Law and Practice
BUYBACK OF SHARES
Case study on the procedure for the buyback of shares out of PROFITS by a plc
Arkwright Limited has adopted the Model Articles without amendment and all issued shares have a nominal value of 1. The issued share capital of the company is 100,000. The abridged balance sheet for the company is set out below. A is to sell his 20,000 shares back to the company for 28,000 (1.40 per share).
| Pre-Buyback | Calculation | Post-Buyback | |
|---|---|---|---|
| Net Assets | 140,000 | 140,000 – 28,000 | 112,000 |
| Paid-up Share Capital | 100,000 | 100,000 – 20,000 nominal value = 1 | 80,000 |
| Capital Redemption Reserve | – | 0 + 20,000 nominal value = 1 | 20,000 |
| Profit & Loss Account | 40,000 | 40,000 – 28,000 | 12,000 |
| Shareholders’ Funds | 140,000 | 80K + 20K + 12 K | 140,000 |
Net Assets and Shareholders’ Funds should be the same.
Voting at the GM
At the GM at which the resolution to approve the contract to buy back the shares is put to a vote, all shareholders attend (including A), but E and F vote against the resolution. Every other shareholder votes in favour, including A. The shareholders and their respective holdings are set out below.
| Shareholders | % if all vote | % if seller does not vote | Holdings |
|---|---|---|---|
| A | 20% | – | 20,000 |
| B | 5% | 6.25% | 5,000 |
| C | 4% | 5% | 4,000 |
| D | 15% | 18.75% | 15,000 |
| E | 18% | 22.5% | 18,000 |
| F | 25% | 31.25% | 25,000 |
| G | 6% | 7.5% | 6,000 |
| H | 7% | 8.75% | 7,000 |
| Total | 100,000 |
Will the resolution be passed?
-
If A votes:
E + F = 43%
Resolution will not pass
-
If A does not vote:
E + F = 53.75%
Resolution will pass
Since A’s vote would pass the resolution, therefore under s.695(3), A would not be permitted to vote in this resolution, therefore the buyback of shares would fail.
Case study on the procedure for the buyback of shares out of CAPITAL by a plc
Arkwright Limited has adopted the Model Articles without amendment and all issued shares have a nominal value of 1. The issued share capital of the company is 100,000. The abridged balance sheet for the company is set out below. A is to sell his 20,000 shares back to the company for 24,000 (1.20 per share).
| Pre-Buyback | Calculation | Post-Buyback | |
|---|---|---|---|
| Net Assets | 120,000 | 120,000 – 24,000 | ... |
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