It is a common problem in the non-family owned private limited company: a shareholder/director wants to retire or leave the business, but one or more of his fellow shareholders/directors want to continue.【C1】 It is easy enough for a director to retire, but the likehood is that he will want to cash in on his shares which have accumulated some value over the period of his participations in the business. Frequently, though, his fellow shareholder/director(s) do not have the financial resources to acquire the shares at their market value. A wide variety of options exit, but purchased own shares by the company is one of the most useful. Purchase of own shares is exactly what says it is: the company acquires the shares from the shareholder. In principle, it is a simple concept but one which is covered by a number of very important legislative provisions, both in company and tax law. 【C2】 Although at first sight the legislation appears to obstruct what might otherwise be a simple process, it actually exists to facilitate the purchase, while protecting the creditor (so far as company la is concerned). In fact, the provisions are too numerous to cover in detail in few words and this article is designed only to outline the rules, regulations and options. Professional advice and assistance should always be sought to implement any purchase of own shares.

【C3】It was always the case that a company could not acquirer its own share, because in doing so it was obtaining ownership of itself, which is contrary to the most fundamental legal principles surrounding the nature and existences of companies. The Companies Art 1981 changed all that and the provisions it introduced are now incorporated into me Companies Act 1985.

【C4】 In essence, provided a company is permitted to do so by its Memorandum, and Articles bof Association, any company can now acquire its own shares (subject to there being at least one left). Because purchase of own shares is a relatively recent innovation, many companies, Memorandum and Articles of Association do not contain this provision but appropriate provisions can be included by Special Resolution, requiring a 75%.

【C5】 Although the purchase must normally be made out of the proceeds of a fresh issue of shares and/of distributable profits, important provisions exist for private companies to make the purchase out of capital. If distributable profits are insufficient then, provided the company s solvent after the redemption and is believed by the directors to be a going concern for a further year (a statutory declaration on which the auditors must report and concur), then the purchase can go ahead.