Accounting treatment of share buybacks
Produced in partnership with Tessa Park of Moore Kingston Smith
Accounting treatment of share buybacks

The following Corporate practice note Produced in partnership with Tessa Park of Moore Kingston Smith provides comprehensive and up to date legal information covering:

  • Accounting treatment of share buybacks
  • Off-market or on-market?
  • Financing a share buyback
  • Accounting treatment of financing method
  • Out of distributable profits
  • Out of the proceeds of a fresh issue of shares
  • Out of capital in accordance with CA 2006, Pt 18, Ch 5
  • Out of capital under CA 2006, s 692(1ZA)
  • Treasury shares
  • Sale of treasury shares
  • More...

A limited company may buy back its own shares, if certain conditions set out in the Companies Act 2006 (CA 2006) are met. This is known as a share buyback or a purchase of own shares. In addition to the provisions of the CA 2006, there are additional rules and guidelines that are relevant to a listed company or an AIM company.

The restrictions in the CA 2006 relating to share buybacks do not apply to unlimited companies. For further information on this type of company, see Practice Note: Unlimited companies.

For an introduction to share buybacks, see Practice Note: Share buybacks—a quick guide.

For a consideration of the law applicable to a share buyback and information on why a company might wish to carry out one, see Practice Note: Share buybacks—the legal framework.

Off-market or on-market?

A private limited company will only buy back its shares off-market. A public company may buy back its shares off-market or on-market.

For an explanation of the differences between an off-market share buyback and an on-market share buyback, see Practice Note: Share buybacks—the legal framework.

Financing a share buyback

A private limited company may finance a share buyback:

  1. out of its distributable profits

  2. out of the proceeds of a fresh issue of shares made for the purpose of such financing

  3. out of capital in accordance with CA 2006, Pt 18, Ch 5 (CA 2006, ss

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