Buyback of Shares Flashcards
What is the principle of maintenance of share capital primarily designed to protect?
A. Shareholders
B. Company directors
C. The public
D. Creditors
D. Creditors
Explanation: The principle exists to ensure company capital is retained as a fund for the benefit of creditors and not returned to shareholders.
Which of the following is NOT a permitted method of funding a buyback of shares?
A. Bank loan
B. Capital (private companies only)
C. Proceeds of a fresh issue of shares
D. Distributable profits
A. Bank loan
Explanation: A company may only buy back shares using distributable profits, the proceeds of a new issue of shares, or capital (if a private company). Loans are not a permitted funding source.
What kind of resolution is required to approve a buyback contract funded out of distributable profits?
A. Special resolution
B. Unanimous resolution
C. No resolution is required
D. Ordinary resolution
D. Ordinary resolution
Explanation: An ordinary resolution is required to approve the buyback contract under s 694 CA 2006.
A private company has sufficient distributable profits and wants to buy back 100 fully paid shares from a departing shareholder. What must the company do before completing the purchase?
A. File a return with Companies House
B. Approve a contract by ordinary resolution
C. Make a public announcement in the Gazette
D. Notify creditors directly
B. Approve a contract by ordinary resolution
Explanation: Under s 694 CA 2006, a buyback contract must be approved by an ordinary resolution of shareholders before completion.
A private company intends to buy back shares using capital. What must it do within seven days of passing the special resolution?
A. Publish a notice in the Gazette and file the directors’ statement of solvency and auditor’s report
B. Complete the share purchase
C. Issue interim dividends
D. File the new Articles with Companies House
A. Publish a notice in the Gazette and file the directors’ statement of solvency and auditor’s report
Explanation: Under s 719 CA 2006, the company must notify creditors via the Gazette and submit documentation to Companies House within 7 days.
A company buys back shares using capital but fails to make its solvency statement and auditor’s report available to shareholders. What is the likely legal outcome?
A. The procedure is unaffected
B. The directors must re-sign the documents
C. The buyback is invalid
D. The shareholders can vote to waive the requirement
C. The buyback is invalid
Explanation: The failure to comply with the statutory requirement to disclose the DSS and AR can invalidate the process.
A company has completed a capital-funded buyback and delivered the shares. What must it file at Companies House within 28 days?
A. A solvency statement
B. A board resolution
C. A certificate of compliance
D. A return, notice of cancellation, and statement of capital
D. A return, notice of cancellation, and statement of capital
Explanation: Under ss 707–708 CA 2006, these filings must be submitted within 28 days of the share buyback being completed.
A private company signs a buyback contract and passes the special resolution approving capital payment. What is the earliest the share buyback can take place?
A. Immediately after the special resolution
B. Two weeks after the solvency statement
C. Between 5 and 7 weeks after the special resolution
D. Once the accounts are updated
C. Between 5 and 7 weeks after the special resolution
Explanation: Under s 723 CA 2006, the purchase must take place no earlier than 5 weeks and no later than 7 weeks after the SR.
A private company issued redeemable shares. The redemption date arrives and the company is redeeming them using capital. What is one key procedural difference compared to a standard buyback?
A. A buyback contract is not required
B. Shareholder approval is unnecessary
C. No need for a solvency statement
D. The shares do not need to be fully paid
A. A buyback contract is not required
Explanation: With redeemable shares, terms are pre-agreed in the Articles or by the board, so a separate contract is not required.
What must directors do before seeking shareholder approval for a buyback using capital?
A. Prepare minutes of a previous buyback
B. Prepare a solvency statement and have it verified by an auditor
C. Notify HMRC
D. Issue new shares
B. Prepare a solvency statement and have it verified by an auditor
Explanation: A director’s statement of solvency and accompanying auditor’s report are mandatory under s 714 CA 2006.
Which resolution is required to approve the payment out of capital for a buyback?
A. Written board resolution
B. Ordinary resolution
C. Special resolution
D. Unanimous shareholder agreement
C. Special resolution
Explanation: Under s 716 CA 2006, shareholders must pass a special resolution to approve use of capital for a buyback.
What happens if a creditor objects to a capital-funded buyback within five weeks of the special resolution?
A. The buyback must be paused immediately
B. The creditor has no rights to intervene
C. The court can cancel the resolution if it finds merit in the objection
D. The buyback must proceed regardless
C. The court can cancel the resolution if it finds merit in the objection
Explanation: Under s 721 CA 2006, a creditor may apply to court, which can cancel the SR if appropriate.
