I8.320 Companies buying their own shares
The fact that companies are legally able to purchase some of their own shares1 and can, in certain circumstances, do so on advantageous tax terms2, raises two separate valuation issues:
(a) the effect this will have upon valuations of shares in unquoted companies in general; and
(b) what price a company should pay for its shares.
Effect on valuations in general
In any particular valuation, the company must be considered as among the possible purchasers in the open market. The effect, if any, that this will have depends upon:
(i) the likelihood of the company's buying:
(1) the holding being valued, or
(2) other shares in the company, and
(ii) the price the company might pay if it did.
If a company changes its Articles of Association to allow a buy-in of its own shares, this has not in the past changed HMRC Shares and Assets Valuation's fundamental approach regarding the discount for the lack of marketability, because the company may not have the financial capacity to effect a buy-back. If the company cannot be, or is very unlikely to be, in the market, its presence as a bidder in the hypothetical sale may be ignored. If it might be in the market but would not pay more than could be obtained elsewhere, the effect on value will be marginal, based upon the fact that the shareholder may be slightly less 'locked in' than otherwise. If the company in question is able and likely in the
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