1. Why conduct a redemption or buyback of shares
A company may have raised capital using the issue of redeemable shares. This capital can be returned to the provider via a redemption of shares. A redemption may also allow a shareholder to exit the company without having to find a 3rd party buyer for the shares in question.
2. What is a redemption or buyback of shares?
The Companies Act, 1990 provides a mechanism for companies to use the company’s funds to redeem or buyback the shares held by a shareholder in the Company. The Act sets out the conditions that must be met before a company is in a position to redeem or buyback the shares.
3. What is the process?
If the shares in question are not already of a redeemable class then they must be converted to redeemable shares and the Registrar of Companies notified of the conversion. The redemption must be funded from distributable profits or from the proceeds of a fresh issue. The members should be notified of the redemption and the board should pass a resolution approving the redemption. The share certificate should be returned to the company and payment will be made on the redemption. Any balancing certificates necessary should be issued and the redeemed shares should be cancelled or held in treasury. The register of members should be updated and the necessary filings made at the CRO.
If the company chooses a buyback rather than a redemption the contract for the transaction must be authorised by a special resolution of the members. The contract must be available for inspection for not less than 21 days before the meeting passing the resolution. Following the buyback the shares should be cancelled or held in treasury. The register of members should be updated and the necessary filings made at the CRO.
The obligations regarding the contract can sometimes mean that the buyback is viewed as the less attractive of the two options.
4. What are the benefits to your business?
A redemption or buyback of shares can be used in a practical way to facilitate the change of ownership in a company. The following are some examples of where they may be useful:
- Succession planning – retirement of parents
- Return of Enterprise Ireland or Enterprise Board investments