There are many reasons for which a company may wish to buyback shares, some of which will be discussed in the following article. For more extensive legal advice about buying back shares, contact your business solicitor.
What happens when the company buys its own shares?
As a company cannot be its own shareholder, the company absorbs the shares that it purchases. This has the effect of reducing the number of shares on the market, which means that the relative ownership stake of each shareholder increases as there are fewer shares on the market. This means that there are also fewer claims on the earnings of the company.
What is the procedure for a buyback?
When a company buys back its shares, it needs to ensure that it complies with the Corporations Act and any applicable regulations set out by ASIC from time to time.
Firstly, the company needs to identify the type of buyback, as there are different statutory requirements to be met for different types of buybacks. The types include:
- Minimum holding;
- Employee share scheme;
- On market buyback;
- Equal access scheme; or
- Selective buyback.
Once the company has identified the type of buyback it wishes to undertake, it needs to seek the necessary shareholder approval. This may involve calling a general meeting and passing the required resolutions at the meeting. The resolutions need to be signed by each relevant shareholder.
ASIC also needs to be notified of the company’s intention to instigate a share buyback. The company can notify ASIC by lodging a Form 280/281.
Having provided ASIC with the necessary notice and the shareholders with required disclosure information, the company can then conduct the buyback. After the buyback, the company needs to notify ASIC again of the changes in its share structure by lodging a Form 484.
After the buyback has been conducted, the company may need to complete further paperwork. Internally, the company will need to update its member register. In addition, if the company purchased all the shares of a particular shareholder who was also a director of the company, the director may be required to resign from the company. The relevant paperwork needs to be prepared, and ASIC also needs to be notified of the director’s resignation from the company.
It is important that a company complies with the applicable laws and regulations when conducting a share buyback. If you are unsure of the correct procedure, or if you require any assistance with the necessary paperwork, you should consult an experienced business lawyer.