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Writer's pictureSue Hearn

Share Buybacks – What are they?


Introduction


A share buyback or purchase of own shares is when companies pay shareholders to buy back their own shares. The shares are often (but not always) cancelled. Whilst there are fewer shares, shareholders get a larger stake in the company and possibly higher dividends in the future. A share buyback can help a company enhance its value to shareholders.

 

Benefits of Share Buyback might include:


·        The provision of an exit route for shareholders - often, in smaller companies, there are a small number of shareholders with one or more wanting to leave. The remaining shareholders may not have the funds to buy the shares of the other(s) or may simply not want to buy them. If the company has the necessary funds, it is an ideal opportunity to allow shareholders to exit;


·        An increase in earnings per share – if a shareholder sells his/her shares back to the company, the remaining shareholders increase their proportion of ownership and may be entitled to a greater share of future profits as there are fewer shares in issue;


·        The return of surplus cash to shareholders – an alternative to the payment of dividends;


·        Tax - if the shareholder is either an employee or a director at the time of the company share buyback and meets certain other criteria, the profit the shareholder makes is taxed as capital at the rate of 10% instead of the normal (higher) tax rates.

 

 

For further advice or assistance, please don't hesitate to contact Richard Jenkins at 024 7698 0613 or Richard@clariclegal.co.uk.


Remember, while this information is valuable, it should not be relied upon as a substitute for legal advice tailored to your specific situation.




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