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Redemption And Buyback Of Shares Notes

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Redemption and buyback of shares

Impact redemption /
buyback has upon balance sheet

Top half of balance sheet

1) Net assets

Net assets (cash) goes down by the amount of the redemption
/ buyback Redemption / buyback of 4000 preference shares out of distributable profits at a cost of PS140,000

Bottom half of balance sheet

1) Ordinary shares of 10p each

Stays the same unless the redemption is of ordinary shares

Before
PS627,000

After
PS487,000

Before
PS1,600

After
PS1.600

2) Redemption shares of PS[30] each

Redemption share figure goes down by the base value of the shares being bought Redemption / buyback of 4000 shares of PS30 each =
PS120,000

3) Share premium account

Stays the same

Before
PS120,000

After
PS0

Before
PS5,400

After
PS5,400

4) Capital redemption reserve

Capital redemption reserve figure goes up by the base value of the shares being bought Redemption / buyback of 4000 shares of PS30 each =
PS120,000

5) Retained earnings / undistributed profits

Retained earnings figure goes down by the amount of the redemption / buyback Redemption / buyback of PS140,000 of preference shares out of distributable profits

6) Total shareholder funds (sum of 1-5 of bottom half of balance sheet)

Total shareholder funds figure goes down by the amount of the redemption / buyback Redemption / buyback of PS140,000 of preference shares out of distributable profits

Before
PS0

After
PS120,000

Before
PS500,000

After
PS360,000

Before
PS627,000

After
PS487,000

Redemption of redeemable shares

1) Redemption out of distributable profits / fresh issue of shares

a) Before redemption

1) Articles must not restrict or prohibit the issue of redeemable shares - s.684(2) Companies Act 2006

2) Check the articles for the terms of the redemption (as no contract is required)

3) Check the company accounts to see if there are sufficient distributable profits and must use these first

4) If there are sufficient distributable profits, use these, otherwise use a fresh issue of shares. Alternatively use company capital

5) Redeemable shares must be fully paid

b) After redemption

1) Notification must be made to Companies House within one month of redemption and must be accompanied by a statement of capital - s.689(1) and (2)

2) Amend the register of members

3) Cancel / reissue share certificates - s.688

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