Do you own a company? Is a shareholder leaving? And does the company want to buy back his or her shares? If you answered yes to all of the above, this article is for you. Firstly, the company needs to decide what type of share buyback it wishes to undertake.
This could be:
- a selective share buyback;
- an equal access share buyback;
- an on-market share buyback;
- an employee share scheme buyback; or
- a minimum holding share buyback.
A common type of share buyback is a selective buyback, which is the type of buyback that we will cover in this article.
If the company wants to affect a selective share buyback, it needs to pass a resolution to seek shareholder approval.
Notice of meeting
Once the company has resolved to seek shareholder approval on a selective share buyback, the company must issue a notice of meeting to all its shareholders. A statement, which sets out all the information that is both known to the company and material to the buyback, must be attached to the notice of meeting.
Before this notice of meeting is sent to the shareholders, ASIC must be notified.
After ASIC has been sent a copy of the notice of meeting, and if ASIC has not taken any steps to prevent the buyback, the company may begin to undertake its selective share buyback.
Where there is a question of a selective buyback, there must be shareholder approval either by all of the shareholders or by a special majority (75%) where no vote is cast by the selling shareholder or any of his or her associates.
Shareholder approval needs to be documented as a resolution.
Board meeting and minutes
As the company will be the purchasing party, the board is required to convene and resolve that the company be a party to the share buyback agreement.
Share buyback agreement
This is the agreement which sets out all the terms on which the company will purchase the shares from the shareholder. This is an important legal document and will set out, amongst other things, the obligations on each party before the transaction is complete, and should also include a detailed suite of releases to be provided by the shareholder.
Letters of resignation
If the shareholder was a director and/or employee of the company, the shareholder should hand over a letter of resignation prior to or on completion.
If the shareholder was also a director in the company, the shareholder would have had access to many of the company’s important documents and would have been involved in meetings relating to business operations and strategies. This means that the departing shareholder is in a strong position to compete with the company. To protect your company’s interests, we recommend that a non-compete agreement be entered into with the departing shareholder to prevent him or her setting up a competing business in close proximity.
Intellectual property assignment deed
If the shareholder, either in his or her position as a shareholder and/or director, created intellectual property in his or her own name for the benefit of the company, and still owns this intellectual property, it is essential that its ownership be transferred to the company. This can be done by way of a simple intellectual property assignment deed.
Depending on the nature of your company and the relationship between your company and the departing shareholder, there may be other ancillary documents that need to be prepared.
The process that a company must go through to buy back its shares is complicated, and it is essential that every document is properly drafted, and each step correctly executed. If your company is looking to undertake a selective share buyback, you should seek assistance from an experienced commercial lawyer. Your lawyer will be able to prepare the necessary documents and guide you through each step to ensure that the transaction is executed as smoothly as possible.