BIS issues new guidance on private company share buybacks

The Department for Business, Innovation and Skills has published some revised guidance on share buybacks by private companies. This guidance has been amended to reflect the changes to the relevant provisions of the Companies Act 2006 that took effect on 6 April 2015, in particular relating to the “de minimis exemption”.

Background

Regulations to make a number of changes to the rules on share buybacks in Part 18 of the Companies Act 2006 took effect in April 2013. These changes were prompted by a desire to make it easier for employees to own shares and mainly affected share buybacks by private companies. Further changes took effect on 6 April 2015. These were to clarify, or in some cases adapt, the application of the rules in light of some concerns that were raised after the changes initially took effect in 2013.

Guidance

The main change to the guidance is to clarify that when shares are repurchased out of capital under the “de minimis exemption” the purchase price does not have to be the nominal value of the shares. The “de minimis exemption” allows private companies with appropriate authority in their Articles to finance share buybacks out of capital up to a certain limit without needing to follow the detailed creditor protection measures that otherwise apply to buybacks out of capital. When this exemption was introduced in 2013, the provisions dealing with the accounting treatment of such repurchases were not clear. Previous BIS guidance suggested that such repurchases had to be made at nominal value. The changes that took effect in April 2015 clarify the accounting treatment of repurchases at amounts greater or less than the nominal value and so the guidance now reflects this.

Click here for Employee Ownership and Share Buy Backs: Simple guide to the Companies Act 2006 (Amendment of Part 18) Regulations 2013 & 2015.