Own Share Purchase Out Of Profits/New Share Issue/Cash - Contract To Purchase
This Own Share Purchase Out of Profits/New Share Issue/Cash – Contract to Purchase is the second step required for a private company wishing to buyback their own shares using distributable profits, the proceeds of a new issue of shares or cash. It should be read in conjunction with Share Buyback Out of Profits Guidance Notes.
Legal Compliance
In order for a private limited company to purchase its own shares there must be a valid contract for the purchase of shares. It is part of a procedure stipulated by the Companies Act 2006, and reflects the April 2013 changes to the Companies Act 2006, notably the move from special resolution to ordinary resolution for approval of the Contract. The full set of requisite templates for a share buyback out of profits has been drafted by experienced lawyers, and regularly downloaded by solicitors, accountants, finance directors, company secretaries and business owners and managers.
What are the Provisions of the Share Buyback Contract to Purchase?
This Contract to Purchase contains the following Clauses:
1. Definitions
2. Sale and Purchase of Sale Shares
3. Representations and Warranties of the Vendors
4. Representations and Warranties of the Purchaser
5. Miscellaneous
6. Notice Details
How to Prepare the Contract?
This document is in open format. The document contains fields which must be completed. It also contains some wording options in square brackets which must be adjusted to suit your purposes.
The company purchasing the shares will be the Purchaser and its details will need to be completed at section 1. The document caters for up to 3 Vendors although more can be added in Schedule I. If more are added, then their names must be added to the cover sheet and they must be given boxes for their signatures on page 7. If any or all of the Vendors are not individuals, then the requirements for signature will have to comply with that body’s authorised signature requirements. Please note that the agreement is a simple contract, not a deed, and so the signatures do not require a common seal or a witness.
The nominal value of the share referred to in Recitals A and B is the value of each share on the share certificate. This may be only a small amount (e.g. 1p, 10p or £1) and may be considerably less than the price paid per share. If the price paid per share is more than the nominal value, then the balance is referred to as the premium.
If the Vendor is a corporate body, then clause 3.4 should be retained, otherwise it should be deleted.
Details for giving notice to each of the parties to the contract should be inserted at clause 6. Schedule I should list the vendors names, number of shares and price of the shares. The share capital of the company purchasing its own shares immediately before completion of the sale and purchase should be inserted at Schedule II and the share capital of the company purchasing its own shares immediately after completion of the sale and purchase should be inserted at Schedule III.
What other Templates are required for this Share Buyback Procedure?
Prior to completing this Share Buyback Contract to Purchase Step 1. should be carried out - A board meeting and minutes presenting the proposal for the share buyback, producing the draft contract and draft approval resolution, and resolutions recommending the buyback and instructing the availability of the contract for inspection.
Step 2: This Contract To Purchase as amended for the proposed transaction.
Step 3: Shareholder Approval – Ordinary resolution required; voting restrictions for the selling shareholder by either General Meeting Minutes or Written Shareholder Resolution.
Step 4: Post-approval – Send copies of certain resolutions to Companies House using Share Buyback Letter.
Step 5: Statutory Forms & Stamp Duty
- File SH03 (return of purchase of own shares) within 28 days.
- Pay stamp duty (0.5% over £1,000).
- File SH06 if shares are cancelled.
Own Share Purchase Out Of Profits/New Share Issue/Cash - Contract To Purchase is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.