Share Buyback UK: Purchase of Own Shares

A share buyback is where a company purchases its own shares from a shareholder — most commonly to buy out someone who's leaving. It's a genuinely useful tool for owner-managed companies, and it's also one of the easiest transactions to get procedurally wrong, because the money has to come from a specific place, the shareholders have to approve the actual contract, and two separate filings land on a 28-day clock.

Here's the sequence, the conditions, and the points where small companies most often trip.

Buyback or Share Transfer? Get This Right First

These are different transactions and people conflate them.

• A share transfer is between two people. The company isn't a party; it just registers the change. Documented on a stock transfer form.
• A share buyback is the company purchasing the shares from the shareholder. The company pays, and the shares are then either cancelled or held in treasury. The company's money is leaving, which is why the Companies Act regulates it.

If the departing shareholder is being bought out by a remaining shareholder personally, that's a transfer — simpler, and none of what follows applies. Only use a buyback where the company itself is paying.

The Conditions That Must Be Met

Section 690(1) grants the power, but hedges it: "A limited company having a share capital may purchase its own shares (including any redeemable shares), subject to— (a) the following provisions of this Chapter, and (b) any restriction or prohibition in the company's articles."

Check your articles first. The power is subject to any restriction in them. If you're on the model articles, there's no prohibition, but bespoke or amended articles sometimes restrict buybacks.

Then the statutory conditions:

The shares must be fully paid. Section 691(1): "A limited company may not purchase its own shares unless they are fully paid."

They must be paid for at the time of purchase. Section 691(2): "Where a limited company purchases its own shares, the shares must be paid for on purchase." You cannot buy back shares on deferred terms and pay in instalments — a genuinely common misconception, and it invalidates the buyback rather than merely delaying it. There is one statutory exception, in section 691(3): "But subsection (2) does not apply in a case where a private limited company is purchasing shares for the purposes of or pursuant to an employees' share scheme." Unless your buyback is under an employees' share scheme, assume payment is due on purchase.

Something must be left over. Section 690(2): a company may not purchase its own shares "if as a result of the purchase there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares." You can't buy back the entire ordinary share capital.

Where the Money Comes From

This is the condition that most often blocks a buyback in a small company, and it's worth checking before you promise anything to a departing shareholder.

Section 692(2) restricts the funding source: a limited company may only purchase its own shares out of "(i) distributable profits of the company, or (ii) the proceeds of a fresh issue of shares made for the purpose of financing the purchase." Any premium payable must come out of distributable profits.

So the practical test is the same distributable-reserves test that governs dividends: does the company have accumulated realised profits available? Cash in the bank is not the test — a company can be cash-rich and reserves-poor. If reserves don't cover the purchase price, the buyback cannot proceed on this route.

Two alternatives if reserves are short:

• The de minimis capital route. Section 692(1ZA) allows a private company, "[i]f authorised to do so by its articles", to purchase shares out of capital otherwise than under Chapter 5, up to an aggregate purchase price in a financial year of "the lower of— (a) £15,000, or (b) the nominal value of 5% of its fully paid share capital as at the beginning of the financial year." Small, but it exists.
• The full out-of-capital procedure. A private company can purchase out of capital more broadly, but this triggers a separate and considerably heavier process in Chapter 5 — a directors' solvency statement, an auditor's report, a special resolution, and public notice. If you need this route, take advice; it isn't a self-filing exercise.

Which Resolution You Need — And the Trap Here

For a private company, the purchase will almost always be an off-market purchase. Section 693(2)(a) defines it: a purchase is off-market if the shares "are purchased otherwise than on a recognised investment exchange". Your company's shares aren't traded on an exchange, so that's you.

An off-market purchase requires the members to authorise the terms of the contract. Section 694 requires that either "the terms of the contract must be authorised by a … resolution of the company before the contract is entered into, or … the contract must provide that no shares may be purchased in pursuance of the contract until its terms have been authorised by a … resolution of the company."

Note the gap in that quote. The word that used to describe the resolution — "special" — was omitted by The Companies Act 2006 (Amendment of Part 18) Regulations 2013 (SI 2013/999), reg. 5(a). Because the section now requires simply "a resolution" without specifying a kind, section 281(3) supplies the default: "what is required is an ordinary resolution unless the company's articles require a higher majority (or unanimity)."

So: an ordinary resolution (simple majority), not a special resolution — unless your articles demand more. A lot of older guidance and template packs still say "special resolution", because that was the law before 2013. Passing a special resolution anyway does no harm, but being told you need 75% when you have 60% has stopped buybacks that were perfectly achievable.

Two further points on the resolution:

• It must authorise the contract, not the concept. The buyback contract (or a written memorandum of its terms) must be available to members before the vote.
• The selling shareholder's own shares don't count toward the vote on the resolution. A shareholder holding the shares being bought back cannot carry the authorisation with those shares.

Our board resolution template guide has the wording for a written ordinary resolution of the members.

The Two Filings and Their 28-Day Deadlines

After the purchase completes, two things may need to reach Companies House. Both run on the same clock.

SH03 — return of purchase of own shares. Section 707 requires that where a company purchases shares under this Chapter, it "must deliver a return to the registrar within the period of 28 days beginning with the date on which the shares are delivered to it." The form is SH03.

SH06 — notice of cancellation. If the shares are cancelled rather than held in treasury, section 708 requires notice to the registrar, also "within the period of 28 days beginning with the date on which the shares are delivered to it", accompanied — in the ordinary case — by a statement of capital showing the share capital after cancellation. Section 708(2) states the duty with its exception built in: the statement is required "except where the statement of capital would be the same as a statement of capital that is required to be delivered to the registrar under section 720B(1)" — that is, where the purchase is a payment out of capital by a private company for the purposes of, or pursuant to, an employees' share scheme, in which case s.720B(1) already requires a statement of capital to be delivered within 15 days of the resolution. The exception bites on that requirement, not on whether you have actually filed yet. The form is SH06.

Failure to file either is an offence by the company and by any officer in default.

The Stamp Duty Step That Delays People

The SH03 is not a form you simply send to Companies House. It's a stampable instrument.

Per HMRC's Stamp Taxes on Shares Manual, "Section 66 Finance Act 1986 makes the SH03 chargeable with Stamp Duty on the consideration given, as if it were an instrument of transfer", and — the operationally critical part — "The Stamp Duty must be paid and the SH03 duly stamped by HMRC (or self-certified to declare that no Stamp Duty is payable) before it is submitted to Companies House." Duty is calculated on the aggregate consideration for all shares on the SH03 and rounded up to the nearest £5.

The rate is the ordinary share rate — "a tax or duty of 0.5% on the transaction". The threshold that decides your routing is stated by Companies House for the SH03 specifically: "If the purchase price of the shares is above the £1,000 duty payable threshold, you'll need to send your SH03 form to HMRC before you send it to Companies House", and "HMRC will issue your company with a letter confirming that the appropriate duty has been paid. You'll need to include the HMRC letter when you send your SH03 form to Companies House." At or below £1,000 there is no duty to pay, so you self-certify on the form instead of routing it via HMRC.

Plan for this in the 28 days. The sequence is: complete the purchase → HMRC stamps the SH03 (or you self-certify) → SH03 reaches Companies House. If you send an unstamped SH03 straight to Companies House it will be rejected, and the 28-day clock does not restart.

The Records to Update

Filing is not the end of it. Inside the company:

• Register of members — remove or reduce the selling shareholder's holding as at the purchase date. See our register of members guide.
• Board minutes — the directors' decision to enter into the buyback contract.
• Members' ordinary resolution — the authorisation, retained with the buyback contract.
• The buyback contract itself — a copy must be kept available for inspection.
• Share certificate — cancel the old certificate; issue a replacement if the holding was reduced rather than eliminated. Our share certificate guide covers what a replacement must show.
• PSC information — if the buyback shifts anyone above or below 25%, the PSC position changes too, and that change is notifiable to Companies House. There is no local PSC register to update — it was abolished on 18 November 2025 (ECCTA 2023 s.51) — but the central filing still has to be made. Easy to miss when the buyback itself has your attention.

Common Mistakes

Paying in instalments. Section 691(2) requires payment on purchase, and the only exception is an employees'-share-scheme purchase under s.691(3). Agreeing to pay a departing shareholder over two years is not otherwise a buyback the Act permits — structure it as a transfer, or fund the buyback properly.

Approving the concept, not the contract. A resolution "that the company buy back Mr Smith's shares" without the contract terms before the members doesn't satisfy section 694.

Assuming a special resolution is required. It's an ordinary resolution unless the articles say otherwise — the "special" wording was removed in 2013.

Confusing cash with reserves. The funding test is distributable profits, not the bank balance.

Sending the SH03 unstamped. It gets rejected and the 28-day deadline keeps running.

Forgetting the SH06. If shares are cancelled, the SH03 alone isn't enough — the cancellation notice is a separate filing, and in the ordinary case a statement of capital goes with it (see the s.708(2) exception above).

Key Takeaways

• Check the articles for any restriction (s.690(1)); shares must be fully paid (s.691(1)) and paid for at the time of purchase (s.691(2)) — the sole exception being a purchase for or pursuant to an employees' share scheme (s.691(3)).
• Fund from distributable profits or a fresh issue made to finance the purchase (s.692(2)) — cash is not the test. A £15,000/5% de minimis capital route exists for private companies (s.692(1ZA)).
• Off-market purchase (s.693(2)(a)) needs an ordinary resolution approving the actual contract (s.694 + s.281(3)), not a special resolution.
• SH03 within 28 days (s.707); SH06 within 28 days if the shares are cancelled, plus a statement of capital unless the identical statement is already due under s.720B(1) (s.708).
• The SH03 must be stamped by HMRC or self-certified before it reaches Companies House.
• Update the register of members and the certificates, and — if a 25% threshold moves — notify the PSC change to Companies House (there is no local PSC register any more).

How CompanyMinder Helps

CompanyMinder records a buyback as a share event against the company, so the register of members updates from the transaction rather than being edited by hand afterwards, and the replacement certificate is generated with the reduced holding and correct numbering. The 28-day SH03 and SH06 deadlines go onto your filing calendar when the event is recorded, alongside your confirmation statement and accounts dates — which is the point at which a buyback stops being a thing you hope you finished correctly.

A Note on Scope

This is general guidance based on the published Companies Act 2006, current Companies House forms, and HMRC's published Stamp Taxes on Shares Manual. Buybacks funded out of capital beyond the de minimis, buybacks involving multiple share classes, and buybacks with tax consequences for the departing shareholder (the distribution-versus-capital treatment in particular) turn on facts specific to the company and the seller — take advice from an accountant or solicitor before completing. It is not legal or tax advice.

Sources

• Companies Act 2006, s.690 — Power of limited company to purchase own shares
• Companies Act 2006, s.691 — Payment for purchase of own shares
• Companies Act 2006, s.692 — Financing of purchase of own shares
• Companies Act 2006, s.693 — Off-market and market purchases
• Companies Act 2006, s.694 — Authorisation of off-market purchase
• The Companies Act 2006 (Amendment of Part 18) Regulations 2013, reg. 5
• Companies Act 2006, s.281 — Resolutions (default is ordinary)
• Companies Act 2006, s.707 — Return to registrar of purchase of own shares
• Companies Act 2006, s.708 — Notice to registrar of cancellation of shares
• GOV.UK — Notify a purchase of own shares (SH03)
• GOV.UK — Notify a cancellation of shares (SH06)
• HMRC Stamp Taxes on Shares Manual, STSM021260 — Company purchasing its own shares
• GOV.UK — Tax when you buy shares