Issue of redeemable shares
Issue of redeemable shares

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Issue of redeemable shares
  • Why do companies issue redeemable shares?
  • Issue of redeemable shares—initial considerations
  • Power to issue redeemable shares
  • Setting (and amending) the terms, conditions and manner of redemption
  • Terms, conditions and manner of redemption
  • Share capital requirements on the issue of redeemable shares
  • Procedure for issuing and allotting redeemable shares
  • Carrying out a redemption of shares

A limited company that proposes to issue redeemable shares must comply with the provisions of the Companies Act 2006 (CA 2006).

Why do companies issue redeemable shares?

A company may wish to issue redeemable shares so that it has an alternative way to return surplus capital to shareholders without having to carry out a purchase of its own shares (also known as a share buyback) or pay a dividend. One of the key reasons why a company may prefer to carry out a redemption rather than a share buyback is that, in contrast to a buyback, stamp duty is not payable on a redemption. For further information on share buybacks, see Practice Notes: Share buybacks—a quick guide and Share buybacks—the legal framework.

Issue of redeemable shares—initial considerations

A limited company having a share capital may issue redeemable shares. Redeemable shares are a statutory concept contained in the CA 2006, which includes detailed provisions relating to the terms, manner, financing and timing of their redemption.

Power to issue redeemable shares

A limited company having a share capital may issue shares that can be redeemed at the option of the company or a shareholder, provided that:

  1. if it is a private limited company, its articles of association do not exclude or restrict the issue of redeemable shares, and

  2. if it is a public limited company, its articles contain an express authorisation for

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