An overview of how a company can own its own shares.
While it may sound unusual, a company can own shares in itself. Of the two main methods of doing so, the most common is when the company holds treasury shares.
Shares can be transferred into treasury when they have been purchased by a company from a shareholder out of distributable profits in accordance with the Companies Act 2006. It should be noted that a company is under no obligation to hold its shares in treasury following a share buyback out of distributable profits and may instead choose to cancel the repurchased shares. When a company buys back its shares into treasury the shares still exist, and so the company’s share capital does not change but the treasury shares have no right to vote, capital distributions or dividends. The treasury shares can later be sold to a new investor (or used to exercise options) without having to complete the process of a new share allotment.
For more information on share buy backs, please see our FAQ.
The other, less common, method for a company to own its own shares is where a shareholder gifts the company some of his/her shares at nil value. A shareholder may gift a company its shares for the following reasons:
- The shareholder wishes to exit the company but there is no buyer for their shares;
- The company wishes to remove historical deferred shares but does not wish to finance or go through the process of a reduction in capital or a share buyback; or
- A director or employee may have to give up their shares in connection with the termination of their position.
When shares are gifted back to the company, a stock transfer will take place with nothing being paid for the shares. Since the company is now the owner of these shares, the register of members will need to be updated. The transferred shares will retain the same rights they previously enjoyed (e.g., if a shareholder transfers 10 ordinary shares to the company, the company will now show as the holder of 10 ordinary shares and will enjoy the benefit of the rights attached to these shares as any other shareholder would).
If you are considering doing any of the above, please speak to your legal advisor.