A purchase of own shares is a UK company buyback governed by funding, authority, payment, cancellation, treasury-share, and filing rules.
A purchase of own shares occurs when a UK company acquires shares that it previously issued. It is the Companies Act 2006 expression for a share buyback and is subject to rules on authority, funding, payment, cancellation or treasury treatment, capital maintenance, and filings.
This page explains the UK framework. For cross-jurisdictional economics and repurchase methods, use Share Repurchase.
Section 690 of the Companies Act 2006 permits a limited company with share capital to purchase its own shares subject to Part 18 and any restriction or prohibition in its articles. The transaction must not leave the company with no issued shares other than redeemable shares or treasury shares.
Section 691 requires purchased shares to be fully paid and, under the general rule, paid for on purchase. Section 692 addresses financing from distributable profits or qualifying fresh-issue proceeds and the separate private-company capital routes.
Those provisions do not replace the rules for approving the transaction, determining the purchase terms, complying with securities and market-abuse rules, or filing the result.
| Route | Basic description | Key evidence |
|---|---|---|
| Market purchase | Acquisition on a qualifying market under an authorized program | Member authority, broker records, prices, dates, and filings |
| Off-market purchase | Acquisition under a contract outside the statutory market-purchase definition | Approved contract, voting records, conflicts review, and settlement |
| Tender or structured offer | Offer made to a group of holders on stated terms | Offer document, tenders, proration, acceptance, and results |
| Employee-scheme purchase | Purchase connected with an employee share scheme | Scheme authority, award records, trust or company documentation |
Section 693 introduces the authority requirements for purchases, with detailed rules for off-market purchases in the following sections and for market purchases in section 701. The company should classify the route from the legal terms, not merely from the label used in a board paper.
The purchase price and any premium should be traced to the permitted source:
Cash availability is not the same as legal distributability. A company can have cash but insufficient distributable profits, or distributable profits but inadequate liquidity after the purchase.
Assume a UK private company has 1 million fully paid ordinary shares with GBP 1 nominal value. It purchases 100,000 shares for GBP 3 each wholly out of distributable profits and cancels them. Ignore fees and tax for illustration.
| Item | Calculation | Result |
|---|---|---|
| Cash paid | 100,000 x GBP 3 | GBP 300,000 |
| Nominal capital cancelled | 100,000 x GBP 1 | GBP 100,000 |
| Shares after cancellation | 1,000,000 - 100,000 | 900,000 |
| Illustrative CRR transfer | Nominal capital cancelled | GBP 100,000 |
Under the stated assumptions, section 733’s Capital Redemption Reserve mechanism replaces the GBP 100,000 reduction in nominal capital with a restricted reserve. The company still pays GBP 300,000 of cash; the reserve is not a cash fund.
A shareholder who owns 90,000 shares and does not sell has 9% before the cancellation and 10% afterward:
That ownership increase is mechanical. It does not prove the continuing holding is worth more, because company cash has fallen and the price paid can be above or below economic value.
The post-purchase treatment changes the share-count analysis:
Section 706 provides the general cancellation treatment, subject to the treasury-share provisions. Treasury Stock is a broader accounting term; UK legal treatment should be checked under the Act effective on the transaction date.
This material is educational and is not UK legal, tax, accounting, corporate-secretarial, transaction, or investment advice.