Share buybacks—the legal framework
Share buybacks—the legal framework

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

  • Share buybacks—the legal framework
  • Why buy back shares?
  • Increasing EPS
  • Increasing NAV per share
  • Disclosure of reasons for previous share buyback
  • Types of share buyback
  • Off-market purchase
  • Market purchase
  • Recognised investment exchanges and marketing arrangements
  • Which type of share buyback can a company undertake?
  • More...

Share buybacks—the legal framework

A limited company may buy back shares in itself, 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 CA 2006, there are other rules and guidelines that are relevant to a listed company or an AIM company. In particular, a listed company must have regard to the Listing Rules (LRs) and the Disclosure Guidance and Transparency Rules (DTRs). An AIM company must have regard to the AIM Rules for Companies (AIM Rules), but these do not specifically refer to share buybacks, so AIM Regulation has confirmed that compliance by an AIM company with the LRs in relation to share buybacks would represent best practice in most circumstances. An AIM company is also subject to DTR 5. In addition, both types of company may follow institutional investor guidance.

The restrictions in 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 a summary of the regime for carrying out a share buyback, see Practice Note: Share buybacks—a quick guide.

Why buy back shares?

A company may choose to buyback shares to:

  1. return to shareholders surplus cash, which does not have a specific purpose and cannot be invested

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