Treasury shares are issued shares that a company has repurchased from its shareholders and chosen to retain \u2018in treasury\u2019, instead of immediately cancelling them after the share buyback procedure. There are several reasons why companies hold treasury shares, which we discuss in this post. We also explain the procedure and administrative requirements involved with company shares held in treasury.\u00a0 \u00a0<\/span><\/p>\n
Before 1 December 2003, UK companies were obliged to cancel any shares that they bought back from their shareholders. However, the Companies Act 2006 (part 18, chapter 6)<\/a> now allows both private and public companies to make a purchase of their own shares and subsequently hold them \u2018in treasury\u2019 to sell or transfer at a later date.<\/p>\n
This means that, whilst a company is entered in its own register of members as the holder of the treasury shares, it cannot exercise any rights in respect of those shares, such as:<\/p>\n
The treasury shares (and their associated rights) are essentially put on hold and kept \u2018in storage\u2019 until such time that the company decides to sell or transfer them, but the company\u2019s share capital remains exactly the same.\u00a0If they are later sold or transferred, the rights attached to those shares are reinstated.\u00a0<\/span><\/p>\n
However, under certain circumstances, private limited companies (as opposed to PLCs) can finance small buybacks of shares out of capital using the \u2018de minimis\u2019 exemption<\/a>. To qualify for this exemption, the aggregate consideration for any buyback transaction in a financial year must not exceed the lower of \u00a315,000 or the cash equivalent of 5% of the aggregate nominal value of the company\u2019s share capital.<\/p>\n
Holding shares in treasury offers the following advantages to certain companies:<\/p>\n
The use of treasury shares is limited to very particular objectives, so they are more commonly found in public limited companies and large private firms. The average UK private limited company does not typically hold them, but they can be beneficial under certain circumstances.\u00a0<\/span><\/p>\n
If you are considering carrying out a share buyback and subsequently holding some or all of the repurchased shares in treasury, there are several steps you need to follow.\u00a0<\/span><\/p>\n
The very first thing you must do is refer to the company\u2019s articles of association<\/a> and any private shareholders\u2019 agreement that exists.\u00a0<\/span><\/p>\n
The Model articles do not prohibit share buybacks or treasury shares, nor do they stipulate that repurchased shares must be cancelled, but some companies include specific exclusions or restrictions in amended or bespoke articles and\/or within a shareholders\u2019 agreement<\/a>.<\/p>\n
If any such restrictions or prohibitions are contained within your company\u2019s articles of association, the shareholders will have to pass a special resolution to amend the articles accordingly.\u00a0<\/span><\/p>\n
Where no restrictions exist, the company is free to carry out a share buyback and place shares into treasury for future use.\u00a0<\/span><\/p>\n
The next step is to carry out a purchase of own shares using the share buyback procedure, as per the requirements of the Companies Act (part 18, chapter 4)<\/a>. This process typically involves:<\/p>\n
To complete form SH03, you must enter the following information:<\/p>\n
The company will be required to calculate, report, and pay Stamp Duty of 0.5% if the share buyback transaction is more than \u00a31,000. If Stamp Duty<\/a> is due, the company must make the required payment and then email the completed form SH03 to HMRC to be stamped.\u00a0<\/span><\/p>\n
When the repurchased shares are in treasury, you will need to update the company\u2019s statutory register of members<\/a> to reflect the changes. You should do this in the same way as a normal transfer of shares, but the company will be listed as the holder of the treasury shares.\u00a0<\/span><\/p>\n
You must also report the change to Companies House when you file your next annual confirmation statement<\/a>, just as you would with a normal transfer of shares. The public register will then be updated accordingly.\u00a0<\/span><\/p>\n
Subject to the company\u2019s articles and shareholders\u2019 agreement, you can sell or transfer treasury shares at any time. However, you can only transfer (as opposed to sell) shares held in treasury for the purposes of an employee share scheme.\u00a0<\/span><\/p>\n
In either case, directors are not usually required to obtain prior approval from the company\u2019s members before doing so.<\/p>\n
Subject to the company\u2019s articles or shareholders\u2019 agreement, pre-emption rights may apply upon the sale or transfer of shares held in treasury. In such instances, the existing members will have to waive their pre-emption rights or authorise a disapplication of pre-emption rights in the articles.<\/p>\n
As soon as the shares have been sold or transferred to the new shareholder(s), the suspended rights attached to those shares are immediately reinstated and can be exercised by the new shareholder(s).\u00a0<\/span><\/p>\n
The company must update the register of members accordingly, issue share certificates to the new shareholders, and complete and deliver Companies House form SH04 \u2018Notify a sale or transfer of treasury shares\u2019<\/a> within 28 days.<\/p>\n
A company can cancel some or all of its treasury shares at any time, subject to the provisions set out in its articles of association or shareholders\u2019 agreement.\u00a0 <\/span>By doing so, the company\u2019s issued share capital will be reduced by the nominal value of the cancelled treasury shares.\u00a0<\/span><\/p>\n
To cancel shares held in treasury, you must complete and file Companies House form SH05 \u2018Notice of cancellation of treasury shares\u2019<\/a> within 28 days.<\/p>\n
Treasury shares provide greater flexibility and convenience to many UK companies by enabling them to manage certain share transactions in a more efficient and cost-effective manner.<\/p>\n
Having the option to repurchase shares and hold them in treasury for an indefinite period of time is particularly beneficial to companies that frequently buy back their own shares to sell to new investors or transfer to an employee share scheme.\u00a0<\/span><\/p>\n
As with any share transaction, professional advice from an accountant is always recommended to ensure the best outcome for your limited company and shareholders.\u00a0<\/span><\/p>\n
If you have any questions about this post, please leave a comment below.<\/p>\n
Treasury shares are issued shares that a company has repurchased from its shareholders and chosen to retain \u2018in treasury\u2019, instead of immediately cancelling them after the share buyback procedure. There are several reasons why companies hold treasury shares, which we discuss in this post. We also explain the procedure and administrative requirements involved with company…<\/p>\n","protected":false},"author":28,"featured_media":11249,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[141],"tags":[],"class_list":["post-11219","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shares-shareholders","category-141","description-off"],"acf":[],"yoast_head":"\n