Purchase of Own Shares. Flashcards
What is a purchase of own shares
The company purchases its own shares back from its shareholders.
Why might a company POS (3)
May be the only way shareholders can get back the capital they originally invested
No willing external buyers for the shares
Family business want to keep it in the family but the other shareholders don’t have the capital to purchase the shares
How is the distribution treated by default.
Treated as a distribution and therefore subject to income tax.
Money received is classes as a dividend
How is the dividend received calculated
Dividend received = Amount received - original subscription price.
Explain the CGT computation for the income distribution route
Also a CGT calc takes place where
Sale proceeds = original subscription price of shares
If the s/holder was the original subscriber the CGT = 0
What are the legal requirements for a POS to take place
(4)
The company must have sufficient distributable reserves
Must have power in articles to effect the buy back
raft agreement 15 days prior to meeting where POS will be discussed
Special resolution
Explain capital distribution route
If certain conditions are met then the distributions are treated as capital.
Normal capital gains tax computation.
May be eligible for BADR
What are the 6 conditions that must be met.
1) Must be an unquoted trading company or holding company of a trading group (is there any investment property)
2) POS must be wholly or mainly for the purpose of benefiting the continuing trade
3) POS must not merely be for the purpose to avoid tax
4) Company and shareholders must be UK residents
5) Vendor holding reduced by at least 25% - Include any associates / Own no more than 75 of orginal shareholding prior to POS
6) Seller must not be connected with the company after POS. Connected means an interest of more than 30% of the company issued share capital - include associates.
