Company buying back own shares

zephyr

Could someone please advise, or point me in the right direction?

Client has two directors /shareholders, they have decided to part ways, with one person remaining in the company.

They have suggested that the company buys back the shares of the one departing shareholder. The shares are valued at approx £400,000, the company is not in a position to pay the amount in full in available cash.

The cash available is £150,000 - the suggestion is that the remaining £250,000 is paid over a three year period, as cash becomes available.

I have read that the shares can only be brought back if the cash is available and cannot be paid from borrowings- have I read this correct?

Does this mean that only £150,000 of the shares can be purchased at the time? And the remaining will remain with the original owner until there is available cash?

Any advise,thoughts would be gratefully received.

davealucas

My view is pretty much that you are correct. The company can only buy back shares by making a cash payment to the shareholder(s). I believe that the Directors must have a meeting and record it.

The company would be entitled to take out a loan to raise funds for the repayment. I think the borrowings you refer to is if shareholders buy shares from the company. I could, of course be wrong and I would be happy to be corrected.

Of course, if it is agreed that the shares are partially bought back, then the remaining shares will still be entitled to dividends that are paid to all shareholders.

There is one other option. Why doesn't the remaining shareholder buy the shares from the leaving shareholder by private treaty? All they need to do is agree a price and the shares remain intact with no buyback from the company.

zephyr

Thank you so much in replying.

The remaining shareholder does not have the funds available. The exiting shareholder requires £150,000 to purchase a house.

The business relationship between the two shareholders has broken down, so to retain some shares is not an option.

Could the company buy back the £150000, and the remaining shareholder enter a private arrangement to buy back the remaining shares over a period of time, which he could fund by future dividends/loan from the company? Although this would not be tax efficient, as he would be paying tax on the dividend

Or let the company buy back from him, once more cash funds are available?

davealucas

You could possibly do it either way. Just bear in mind that the exiting shareholder would still be entitled to any dividends declared on any shares they still hold.