If your shares are in a private limited company the two most common ways that you can get your share capital back are by a company share buyback funded from the company’s distributable profits or a reduction of share capital supported by directors’ solvency statement.

Company share buyback

The Companies Act 2006 (CA06) provides that there is no requirement for a company's articles to have provisions giving the company authority to buyback its own shares (this also applies to companies incorporated before the CA06). However, it is always wise to check the company's articles to ensure that there are no provisions that restrict or prohibit the buyback. This is more likely in companies formed before 1981.

If there are provisions restricting or prohibiting a buyback a special resolution can usually be passed by members representing 75% of the voting rights to amend or revoke these. Some companies may have provisions that are entrenched and therefore may need a greater majority than that required to pass a special resolution.

Also, there may be provisions in the articles or a shareholders agreement (if any) relating to pre-emption rights or other restrictions on a transfer of shares. For example, shares must be offered to existing members before they can be transferred to any other party (including the company). These provisions would need to be followed, waived or amended before the company could proceed with the buyback.

For the buyback to be valid the directors of the company must (1) ask the members to approve an agreement for the buyback (but note there are certain voting restrictions on the member holding the shares that the company is buying back) and (2) notice of the buyback and, if applicable, of the cancellation of the shares bought back must be filed at Companies House. Stamp duty is payable if the purchase price exceeds £1,000 (see table below).

Capital reduction

Under the CA06 a private limited company can reduce its share capital by a special resolution of its members supported by a solvency statement signed by every director. However, a company may not reduce its share capital if, as a result of the reduction, there will no longer be any member of the company holding shares. Again, it is advisable to check that there are no restrictions or prohibitions on a reduction of capital under the articles.

The solvency statement cannot be made more than 15 days before the date on which the special resolution to reduce capital is passed. Also, the solvency statement must only be made after a thorough investigation of the company's affairs particularly its debts and liabilities. It is a criminal offence on the part of the directors to make a solvency statement without having reasonable grounds for the opinions expressed in it.

The primary differences between the two methods are: