Chapter 6Companiesshares. There must be a member or members holding
non-redeemable shares.
4 A public limited company must have allotted share
capital of at least £50,000.
5 The shares must, in general terms, be cancelled fol-
lowing purchase (but see below).
Treasury shares
The CA 2006 in Chapter 6 allows public companies
whose shares are listed on the Official List of the Stock
Exchange or traded on the Alternative Investment Market
or traded on equivalent markets in another European
Economic Area member state to keep shares in what is
called treasury after they have been purchased back by
the company. The company is registered as the holder of
the shares that have gone into treasury and not more
than 10 per cent of the company’s issued shares can be
held in treasury or 10 per cent of any class of shares. This
means that the whole of the treasury shares cannot be
taken from one class where the company has differ-
ent classes of shares. If the company therefore has A
Ordinary, B Ordinary and C Ordinary shares and each
class contains 100 shares, then 10 per cent of the issued
capital is 30 shares but these cannot all come from one
class since to take 30 shares from any one of the classes
would be to take 30 per cent of the class which is not
allowed. Therefore, the purchases must be spread across
the classes 10 from each or, if only the A Ordinaries
are purchased, then only 10 shares of that class may be
kept in treasury. Any purchase in excess of this must be
disposed of by the company within 12 months of the
purchase or cancelled. The following additional provi-
sions should be noted:
■To make a purchase of its own shares for treasury, the
company must have sufficient distributable profits. If
the shares are purchased from the proceeds of a fresh
issue of shares, the shares purchased must be cancelled.
■When treasury shares are sold for a price equal to
or less than the price the company paid for them,
the proceeds of sale can under the Act be treated as
realised profits, but if the sale price is more, the excess
is treated as capital and must be transferred to a
share premium account. The excess is not therefore
distributable.
■Treasury shares must not receive dividends or give
the company as holder any voting rights but on a
bonus issue the company may receive bonus shares in
respect of the treasury shares it holds.
■Pre-emption rights apply and so treasury shares must,
on sale, be offered to existing shareholders first. In fact,
listed companies can only issue 5 per cent of their
securities to persons other than existing shareholders
in any one year. This may remove some of the flex-
ibility in the disposal of treasury shares outside the
company.
■Under the UK Listing Rules treasury shares will con-
tinue to be quoted but are not to be sold at more than
a 10 per cent discount to current market price.Market purchase
Public companies may make a market purchase on, for
example, the Stock Exchange or the Alternative Invest-
ment Market (AIM) (see below), or an off-market pur-
chase from an individual shareholder.
Before a Stock Exchange or AIM purchase can be
made by the directors the members must approve by
ordinary resolution. The resolution must state the max-
imum number of shares which the directors can acquire
and the maximum and minimum prices which they can
pay. The minimum price is often specified, but the max-
imum price is usually according to a formula, for exam-
ple one based upon the Daily Official List of the Stock
Exchange on a day or days preceding the day on which
the share is contracted to be purchased, e.g. an amount
equal to 105 per cent of the average of the upper and
lower prices shown in the quotation for ordinary shares
of the company in the daily list of the Stock Exchange on
the three business days immediately preceding the day
on which the contract to purchase is made.
The duration of the authority to purchase must be
stated in the resolution by stating the date on which it
expires.
A copy of the resolution must be filed with the
Registrar of Companies within 15 days after it is passed.Off-market purchase
These provisions are mainly for private companies but
can be used, as we have seen, by PLCs whose shares are
not listed on the Stock Exchange or quoted on the AIM,
which is regulated by the Stock Exchange for the smaller
PLCs which cannot or who do not wish to comply with
the conditions for a full listing on the Stock Exchange.
The procedure is as follows:1 A special (or, in private companies, written) resolu-
tion of the members is required before the contract is
entered into. The contract must therefore be approved163