Share Buybacks Flashcards
Dividends
all in Red
s.830 - can ONLY pay dividends (‘make a distribution’) out of DISTRIBUTABLE PROFITS.
‘Distrubutions’ defined by s.829.
s. 836 - must be assessed by reference to the last relevant account.
s. 847 - consequences: member who knows or has reasonabek grounds to know of the contravention, must repay it!
Art 30 MA: procedure for declaring dividends
Final Dividend:
- directors decide by board resolution
- declared by ordinary resolution of shareholders (at which point it becomes an enforceable debt)
- approved and paid by board resolution
Directors can also pay an Interim Dividend during the year, without needing shareholder approval - by Board Resolution only.
Buybacks: explanatory note
Buybacks are a way for shareholders to get a capital return on their investment when they can’t sell the shares to someone else (i.e. because of pre-emotion rights on transfer)
There is just one of many advantages.
There are TWO TYPES of BUYBACK:
- REDEMPTION
- PURCHASE OF OWN SHARES
What’s the difference?
REDEMPTION
- redemption is only relevant when the company is buying back REDEEMABLE SHARES - such shares were created with the intention of them being bought back - therefore, the articles will state a procedure for doing so.
Any other type of share buyback is a
PURCHASE OF OWN SHARES.
- main difference is the requirement of a CONTRACT.
PURCHASE OF OWN SHARES
(general provisions)
all in Red
s.658 - General rule: company can only purchase its
shares under this Part; otherwise an offence.
s.690 - Company can only purchase shares if:
> comply with provisions of this Chapter
> no restrictions in articles
> doesn’t leave behind on redeemable shares or shares held in treasury.
s.691 - can only purchase shares that are fully paid
s. 692 - can be financed out of:
- distributable profits
- a fresh issue of shares made for the purpose of financing the purchase
- if the shares were issued at a premium, then any premium now payable can be funded out of the share premium account
- capital, in accordance with this Chapter.
s. 693 - company can only make off-market purchase in pursuance of a contract under s.694 (off-market = not on a recognised investment exchange)
s. 694 - contract must first be approved by resolution!
s. 695 - person holding shares to which resolution under s.694 relates is not an ‘eliglbe member’ if written resolution, and if general meeting, the resolution not effective they vote and would not have been passed without.
s. 696 - copy of contract (or memo of its terms) must be available at registered office at least 15 days before the meeting, and at the meeting itself; OR of written resolution, must be sent to each eligible member before resolution sent to him
- Means Short Notice Procedure not much use (saves one day - clear day rule does not apply so s.696 - Written Resolution can be quicker.)
s. 702 - contract open for inspection for 10 years!
s. 703 - breach of s.702 for over 14 days is an offence
s. 705 - Connected expenses pursuant to contract apart from purchase price only out of distributable profits
s. 706 - once purchased, the company may hold the shares in treasuty or cancel them (at which point shared capital is reduced accordingly)
s. 707 - must deliver return to registrar within 28 days with particulars; offence if fail to do so.
s. 708, if shares cancelled, must also send to registrar within 28 days a notice of such, together with statement of capital.
s. 724 - may hold as treasury shares; must update register of members wirh name of company.
s. 733 - must create a Capital Redemption Reserve; where shares redeemed or purchased wholly out of PROFITS, the amount the issued share capital has diminised must be transferred to the capital redemption reserve.
s. 735 - company not liable if it fails to purchase or redeem the shares (i.e. it decides not to go ahead).
s. 736 - defines distributable profits.
REDEMPTIONS
blue highlighting; red tagging
s.684 - company may issue redeemable shares (unless no normal issued shares at the time)
+ ART 22 MA
s. 685 - directors can determine procedure etc. for redemption in articles or by resolution
s. 686 - cannot redeem share unless fully paid
s. 687 - Redemption can only be financed by:
- capital if in according with Chapter
- distributable profits
- proceeds of fresh issue made for the purpose of the redemption
- if premium paid when they were issued, any premium payable on their redemption can use the premiums on on fresh issue or the share premium account
s. 688 - when redeemed, shares treated as cancelled; share capital diminished accordingly.
s. 689 - must within one month of redemption give notice to registrar specifying shares redeemed, accompanied by statement of capital.
Funding buybacks out of CAPITAL (either own share purchases of redemptions)
(Green highlighting, red tabbing)
s. 360 - note clear day rule does not apply here!
s. 709 - private limited comapny can purchase/redeem out of capital, if comply with this Chapter and NO RESTRICTION IN ARTICLES
S.710 - can only use capital after have first used profits or proceeds of fresh issue - the ‘permissible capital payment’
s. 711 and 712 - how available profits were determined
s. 713 - payment out of capital for REDEMTION OR OWN SHARE PURCHASE not lawful unless company complies with ss. 714, 716, 719 and 720.
s. 714 - need a directors’ statement - in a prescribed form - setting out capital payment and that company able to pay debts now and for the next year etc. and can continue business as going concern
- must have annexed to it an auditor’s report, essentially confirming directors’ statement
s. 715 - if directors don’t have reasonable grounds for their opinions in s.714 statement - offence.
s. 716 - must be approved by SPECIAL RESOLUTION - must be passed within 1 week immediately after directors make s.714 statement.
s. 717 - if you hold the shares in question, not an eligible member if written resolution; and vote at meeting not effective if would not be passed without your vote.
s. 718 - directors’ s.714 statement and auditor’s report must be available for inspection at the meeting, (or sent to every elgible member if written resolution)
s. 719 - PUBLIC NOTICE - within week following resolution, must:
- put notice in Gazette (with partculars, including stating the creditors’ rights under s.721)
- put same notice in a national newspaper OR give notice in writing to each creditor
- by the date company publishes first of those notices, must deliver to registrar copy of directors’ statement and auditor’s report.
s. 720 - Directors’ statement and auditors report must be open to inspection from the day when the first of the notices required by s.719 is published, endng 5 weeks after the date of the resolution.
s. 721 - a member (except those who consented) or creditor can apply to court to cancel the resolution, within 5 weeks when it passed.
s. 723 - PAYMENT OUT OF CAPITAL MUST NOT BE MADE EARLIER THAN 5 WEEKS SINCE THE RESOLUTION PASSED, BUT NOT LATER THAN 7 WEEKS (so a 2 week window to do it!)
s. 734 - accounting treatment
s. 76 IA1986 - if redemption/purchase a year before winding up etc., possible to go after directors / those who sold their shares.
Reduction of Capital
Red
s. 610 - share premium account counts towards paid up share capital.
s. 641 - private company only can reduce capital by special resolution + solvency statement; can otherwise be done (including by public company) using court procedure - but neither can be done if after reduction, no member holding shares other than redeemable shares.
s. 642 - solvency statement must be made no more than 15 days before date resolution passed and must be registered (s.644).
- if written resolution, copy of solvency statement must be sent to every eligible member; or
- if general meeting, copy must be available for inspection during meeting; but
- resolution still valid if fail to comply with ***
s.643 - solvency statement specifics, opinion, offence
s.644 - must send to registrar:
- special resolution (as normal)
- copy of solvency statement]
- statement of capital
- statement by directors confirming that solvency statement was made no more than 15 days before resolution.
RESOLUTION DOES NOT TAKE EFFECT UNTIL REGISTRAR REGISTERS THE ABOVE 3.
