Q&As

Can a company borrow to finance a share buyback?

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Published on LexisPSL on 22/06/2016

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Can a company borrow to finance a share buyback?

Under section 692 of the Companies Act 2006 (CA 2006), a share buyback carried out by a private company limited by shares must be financed:

  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 709–723), after it has applied for the purpose of the buyback, and exhausted, any distributable profits and the proceeds of any fresh issue of shares made for the purpose of such financing

  4. out of capital under CA 2006, s 692(1ZA) up to an aggregate purchase price in a financial year not exceeding the lower of £15,000 or the nominal value of 5% of its fully paid share capital as at the beginning of the financial year (such value to be calculated in accordance with the CA 2006)

A share buyback carried out by a public company limited by shares must be financed:

  1. out of its d

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