For a private company limited by shares in Ireland (an “LTD”), the acquisition of its own shares is governed by the Companies Act 2014. There are various reasons why a company might wish to acquire its own shares. For example, in circumstances of conflict and otherwise, it can provide a secure and mutually beneficial exit route for members of the company. The following are 5 important points to note about buybacks and redemptions for LTD companies in Ireland.
1.) Redemption V Buy Back
The key difference between a redemption of shares and a buy back is that redemption applies to “redeemable shares” which were expressly issued with the purpose, or the expectation, that they be redeemed. The process for a redemption and buyback are similar save a few specific differences. For example, in cases where the proposed buy back of shares are authorised by special resolution or by the granting of an option, the contract or a memorandum of the terms should be displayed at the registered office for a minimum of 21 days.
Subject to a company’s constitution, it is possible to convert shares into redeemable shares as Section 83 of the Companies Act 2014 provides the capacity to do so by special resolution.
2.) Funds Used For The Acquisition
In order to redeem or buy back shares, the company must use funds from profits available for distribution. However, in cases where the company intends to cancel the shares following the acquisition, it can acquire the shares using the proceeds of a fresh issue of shares made for the purpose of the acquisition.
3.) Cancellation V Treasury Shares
Once shares are acquired, they can either be held as treasury shares or cancelled.
At any one time, the nominal value of treasury shares which a company holds may not exceed 10 per cent of the company’s capital. Treasury shares do not carry a voting right or a right to dividends and they may be reissued or cancelled at a later date. If the shares are cancelled, the authorised share capital of the company will not be affected.
4.) Conditions Relating To The Acquisition Of Shares
Section 105 of the Companies Act 2014 provides various conditions which must be satisfied in the course of the transaction. The redemption or purchase of shares by a company may only be authorised through:
- Authorisation contained in the company’s constitution,
- a special resolution of the shareholders, or
- the rights attaching to the shares in question.
5.) Companies Registration Office
The company will be required to notify the Companies Registration Office within 30 days of the redemption, buy back or cancellation of shares using the relevant statutory forms.
Careful consideration must be given to identifying an appropriate approach and implementing measures to enable effective share restructure. It is recommended that a company considering the acquisition of its own shares seek consultation from an experienced corporate services provider that specialises in structuring shares.