Companies: purchase of own shares

Updated: Aug 20, 2021

Until the introduction of the 1981 Companies Act, companies were prohibited from buying their own shares. The law has now been changed and the 1981 Companies Act gave any company the right to buy in its own shares, provided that the power was contained in its Articles and that certain conditions were observed. These were substantially the same as those applicable to the redemption of shares, the one difference being that the Articles gave only permission to purchase and not the terms or manner thereof. Additionally, it should be noted that where there exists a class of shares with preferential rights over those of the shares to be purchased, then the consent of members of that class must first be obtained.

Purchase of own shares may be made through a recognized stock exchange or by what are known as ‘off market means’, e.g. directly from a member or through the overthe-counter market. Stock exchange market purchases require the authorization of an ordinary resolution of the company in general meeting. Off market purchases are permitted only by contract and if passed by a special resolution. In both cascs, details of the prospective purchase must be approved, e.g. number and price limits. The authorization must contain these details and must also set time limits for purchases. A printed copy of any resolution giving authorization for share purchase must be filed with the Registrar of Companies.

When a company purchases its own shares, certain prescribed information must be filed with the Registrar of Companies within twenty-eight days of purchase. Specified details must also be included in the Directors’ Report. Contingent contracts to purchase its own si:s are permissible and are covered by off market purchase procedures. A company cannot, however, assign rights under such contracts and thereby use them to speculate against its own shares by buying and selling rights to purchase.

Reference: The Penguin Business Dictionary, 3rd edt.

Sources & references
Risk disclaimer
James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.