The effect of a private company redemption of shares, including post-redemption steps
The effect of a private company redemption of shares, including post-redemption steps

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

  • The effect of a private company redemption of shares, including post-redemption steps
  • What is the effect of a redemption of shares?
  • The register of members and share certificates
  • Stamp tax
  • Companies House filings
  • Companies House notice on a redemption of shares
  • Accounting impact
  • Finance out of distributable profits
  • Finance out of the proceeds of a fresh issue of shares
  • Finance out of capital in accordance with CA 2006, Pt 18, Ch 5
  • More...

Coronavirus (COVID-19): Following the coronavirus (COVID-19) outbreak, some Companies House filing and other administrative procedures have been temporarily suspended or changed. For further details of the impact of COVID-19, see Practice Note: Coronavirus (COVID–19)—impact on company filing and administrative procedures.

A limited company that proposes to carry out a redemption of redeemable shares must comply with the provisions of the Companies Act 2006 (CA 2006). 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 (for further information, see our Practice Notes on public company redemptions of shares).

For a discussion of the legal requirements that a company must comply with in order to issue redeemable shares, and the reasons why a company may redeem its shares, see Practice Note: Issue of redeemable shares.

What is the effect of a redemption of shares?

If a limited company redeems its shares:

  1. those shares are treated as cancelled, and

  2. the amount of the company’s issued share capital will be diminished accordingly by the nominal value of the shares redeemed

It is not possible to hold redeemed shares in treasury, as it is on a share buyback: they are treated as cancelled immediately upon redemption.

The register of members and share certificates

A company's register of members must be updated to reflect the redemption of the shares and any

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