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HMRC internal manual

Capital Gains Manual

Co.purchases own shares: general: introduction

Part 18 Companies Act 2006 allows a company to purchase its own shares if its Articles of Association authorise it to do so. To be valid, the terms of the purchase must provide for immediate payment. There are two parties to the transaction, the company making the purchase and the shareholder whose shares are purchased. For information about how the CT distributions legislation applies to the purchase of own shares see CTM17500+.

A private company limited by shares can purchase its own shares by passing an ordinary resolution with statements by directors supporting its solvency and an auditor’s report confirming that. The company would be able to provide financial assistance for purchases of its own shares assuming it does not result in unlawful reduction of capital.

A public limited company needs to apply for court approval for capital reduction and they are prohibited by CA06 from providing financial assistance for purchases of own shares.

SI 2013/999 introduced simplified rules and amongst others,

  • Allowed companies to place shares in treasury – stock or securities are kept in the company’s own treasury
  • Allowed for off-market share buy backs which only need to be authorised by simple ordinary resolutions – off market is where the sale of shares does not take place in a recognised exchange
  • Allowed for approval of multiple off market purchase of own shares for employee share schemes by single ordinary resolutions provided certain conditions are met.

When a company purchases its own shares, they are treated as cancelled under CA06/S706(b). The amount of the company’s issued capital is then reduced accordingly by the nominal value of the shares cancelled. Where the shares are held in treasury, CA06/S729 allows the company to either cancel the shares at any time and the company’s issued share capital is then reduced by the nominal value of the shares cancelled or have them held without any rights attached to them. For most tax purposes, FA03/S195(4) provides that any shares in itself that a company purchases are treated as cancelled, whether they are actually cancelled or held in treasury (see CG50209).