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Buyback Of Shares Notes

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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
£140,000

Net Assets
Paid-up Share
Capital
Capital Redemption
Reserve
Profit & Loss
Account
Shareholders' Funds

£100,000Calculation 140,000 - 28,000 100,000 - 20,000 nominal value = £1 0 + 20,000 nominal value = £1

Post-Buyback
£112,000
£80,000
£20,000

£40,000

40,000 - 28,000

£12,000

£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
A
B
C
D
E
F
G
H
Total

% if all vote 20%
5%
4%
15%
18%
25%
6%
7%

% if seller does not vote6.25%
5%

18.75%

22.5%

31.25%

7.5%

8.75%

Holdings 20,000 5,000 4,000 15,000 18,000 25,000 6,000 7,000 100,000

Will the resolution be passed?
 If A votes:
o E + F = 43%
o Resolution will not pass
 If A does not vote:
o E + F = 53.75%
o 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.

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