Companies Act 2006

Chapter 6 Treasury shares

724 Treasury shares

(1) This section applies where—

(a) a limited company makes a purchase of its own shares in accordance with Chapter 4,

(b) the purchase is made out of distributable profits, and

(c) the shares are qualifying shares.

(2) For this purpose “qualifying shares” means shares that—

(a) are included in the official list in accordance with the provisions of Part 6 of the Financial Services and Markets Act 2000 (c. 8),

(b) are traded on the market known as the Alternative Investment Market established under the rules of London Stock Exchange plc,

(c) are officially listed in an EEA State, or

(d) are traded on a regulated market.

In paragraph (a) “the official list” has the meaning given in section 103(1) of the Financial Services and Markets Act 2000.

(3) Where this section applies the company may—

(a) hold the shares (or any of them), or

(b) deal with any of them, at any time, in accordance with section 727 or 729.

(4) Where shares are held by the company, the company must be entered in its register of members as the member holding the shares.

(5) In the Companies Acts references to a company holding shares as treasury shares are to the company holding shares that—

(a) were (or are treated as having been) purchased by it in circumstances in which this section applies, and

(b) have been held by the company continuously since they were so purchased (or treated as purchased).

725 Treasury shares: maximum holdings

(1) Where a company has shares of only one class, the aggregate nominal value of shares held as treasury shares must not at any time exceed 10% of the nominal value of the issued share capital of the company at that time.

(2) Where the share capital of a company is divided into shares of different classes, the aggregate nominal value of the shares of any class held as treasury shares must not at any time exceed 10% of the nominal value of the issued share capital of the shares of that class at that time.

(3) If subsection (1) or (2) is contravened by a company, the company must dispose of or cancel the excess shares, in accordance with section 727 or 729, before the end of the period of twelve months beginning with the date on which that contravention occurs.

The “excess shares” means such number of the shares held by the company as treasury shares at the time in question as resulted in the limit being exceeded.

(4) Where a company purchases qualifying shares out of distributable profits in accordance with section 724, a contravention by the company of subsection (1) or (2) above does not render the acquisition void under section 658 (general rule against limited company acquiring its own shares).

726 Treasury shares: exercise of rights

(1) This section applies where shares are held by a company as treasury shares.

(2) The company must not exercise any right in respect of the treasury shares, and any purported exercise of such a right is void.

This applies, in particular, to any right to attend or vote at meetings.

(3) No dividend may be paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of the treasury shares.

(4) Nothing in this section prevents—

(a) an allotment of shares as fully paid bonus shares in respect of the treasury shares, or

(b) the payment of any amount payable on the redemption of the treasury shares (if they are redeemable shares).

(5) Shares allotted as fully paid bonus shares in respect of the treasury shares are treated as if purchased by the company, at the time they were allotted, in circumstances in which section 724(1) (treasury shares) applied.

727 Treasury shares: disposal

(1) Where shares are held as treasury shares, the company may at any time—

(a) sell the shares (or any of them) for a cash consideration, or

(b) transfer the shares (or any of them) for the purposes of or pursuant to an employees' share scheme.

(2) In subsection (1)(a) “cash consideration” means—

(a) cash received by the company, or

(b) a cheque received by the company in good faith that the directors have no reason for suspecting will not be paid, or

(c) a release of a liability of the company for a liquidated sum, or

(d) an undertaking to pay cash to the company on or before a date not more than 90 days after the date on which the company agrees to sell the shares, or

(e) payment by any other means giving rise to a present or future entitlement (of the company or a person acting on the company’s behalf) to a payment, or credit equivalent to payment, in cash.

For this purpose “cash” includes foreign currency.

(3) The Secretary of State may by order provide that particular means of payment specified in the order are to be regarded as falling within subsection (2)(e).

(4) If the company receives a notice under section 979 (takeover offers: right of offeror to buy out minority shareholders) that a person desires to acquire shares held by the company as treasury shares, the company must not sell or transfer the shares to which the notice relates except to that person.

(5) An order under this section is subject to negative resolution procedure.

728 Treasury shares: notice of disposal

(1) Where shares held by a company as treasury shares—

(a) are sold, or

(b) are transferred for the purposes of an employees' share scheme,

the company must deliver a return to the registrar not later than 28 days after the shares are disposed of.

(2) The return must state with respect to shares of each class disposed of—

(a) the number and nominal value of the shares, and

(b) the date on which they were disposed of.

(3) Particulars of shares disposed of on different dates may be included in a single return.

(4) If default is made in complying with this section an offence is committed by every officer of the company who is in default.

(5) A person guilty of an offence under this section is liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum and, for continued contravention, a daily default fine not exceeding one-tenth of the statutory maximum.

729 Treasury shares: cancellation

(1) Where shares are held as treasury shares, the company may at any time cancel the shares (or any of them).

(2) If shares held as treasury shares cease to be qualifying shares, the company must forthwith cancel the shares.

(3) For this purpose shares are not to be regarded as ceasing to be qualifying shares by virtue only of—

(a) the suspension of their listing in accordance with the applicable rules in the EEA State in which the shares are officially listed, or

(b) the suspension of their trading in accordance with—

(i) in the case of shares traded on the market known as the Alternative Investment Market, the rules of London Stock Exchange plc, and

(ii) in any other case, the rules of the regulated market on which they are traded.

(4) If company cancels shares held as treasury shares, the amount of the company’s share capital is reduced accordingly by the nominal amount of the shares cancelled.

(5) The directors may take any steps required to enable the company to cancel its shares under this section without complying with the provisions of Chapter 10 of Part 17 (reduction of share capital).

730 Treasury shares: notice of cancellation

(1) Where shares held by a company as treasury shares are cancelled, the company must deliver a return to the registrar not later than 28 days after the shares are cancelled.

This does not apply to shares that are cancelled forthwith on their acquisition by the company (see section 708).

(2) The return must state with respect to shares of each class cancelled—

(a) the number and nominal value of the shares, and

(b) the date on which they were cancelled.

(3) Particulars of shares cancelled on different dates may be included in a single return.

(4) The notice must be accompanied by a statement of capital.

(5) The statement of capital must state with respect to the company’s share capital immediately following the cancellation—

(a) the total number of shares of the company,

(b) the aggregate nominal value of those shares,

(c) for each class of shares—

(i) prescribed particulars of the rights attached to the shares,

(ii) the total number of shares of that class, and

(iii) the aggregate nominal value of shares of that class, and

(d) the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).

(6) If default is made in complying with this section, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(7) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

731 Treasury shares: treatment of proceeds of sale

(1) Where shares held as treasury shares are sold, the proceeds of sale must be dealt with in accordance with this section.

(2) If the proceeds of sale are equal to or less than the purchase price paid by the company for the shares, the proceeds are treated for the purposes of Part 23 (distributions) as a realised profit of the company.

(3) If the proceeds of sale exceed the purchase price paid by the company—

(a) an amount equal to the purchase price paid is treated as a realised profit of the company for the purposes of that Part, and

(b) the excess must be transferred to the company’s share premium account.

(4) For the purposes of this section—

(a) the purchase price paid by the company must be determined by the application of a weighted average price method, and

(b) if the shares were allotted to the company as fully paid bonus shares, the purchase price paid for them is treated as nil.

732 Treasury shares: offences

(1) If a company contravenes any of the provisions of this Chapter (except section 730 (notice of cancellation)), an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(2) A person guilty of an offence under this section is liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction to a fine not exceeding the statutory maximum.