A share buyback takes place when a company purchases shares in itself from an existing shareholder. A company may decide to purchase shares from a shareholder when there is no other buyer available.

Generally, there are four ways for a private company to finance the buyback of its own shares:

  1. out of distributable profits (this is the most common);
  2. out of the proceeds of a fresh issue of shares;
  3. out of capital either in compliance with Chapter 5 of the Companies Act 2006; or
  4. using the De Minimis provisions set out in s.692(1ZA) Companies Act 2006.

Under the De Minimis Procedure (which is a share buyback out of capital) the amount of shares a company can buyback is capped at an aggregate amount in a financial year not exceeding the lower of the value of 5% of its share capital or £15,000.

In each case, it is important to check the articles of association of the company for any restrictions or procedures that need to be followed in order to authorise the repurchase of shares. Shares bought back by a company are normally cancelled. However, if shares are brought back using distributable profits, companies have the option to hold them ‘in treasury’ instead of cancelling them. Treasury shares can be sold, cancelled at any time or held in treasury indefinitely. 

Whichever method you decide to use, it is important that you understand the practicalities of these options.

If you want to know more about share buybacks, please contact our Business Services Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

To describe 2020 as a rollercoaster would be an understatement. In the course of a year we have faced two national lockdowns, a series of local lockdowns and continue to face restrictions on our daily lives. Health and wellbeing is paramount, but naturally the impact on businesses has been unprecedented and never has it been more important to ensure that your business is up to date and compliant with the current regulations and best practice. Doing so not only can avoid claims and unwarranted disputes, but it can protect and maintain the value of your business for the future.

Key things that you should consider are:-

Employees

‘Furlough’ is the buzz word of 2020 when it comes to employment, with many taking advantage of the government backed scheme to retain staff and maintain livelihoods. Ensuring that your scheme is compliant and that communication with staff is clear can avoid claims and disputes.

Premises

With a nationwide-shift to working from home where you can, it is only natural to consider the use of your premises and if it is still required. Many are finding that their employees are equally as efficient from home and prefer the flexibility. If you find yourself in this situation, you should review your Lease to know where you stand on effecting any changes necessary – possibly saving costs in the long-run.

Contracts

With supply chains disrupted and consumers heavily reliant on quick deliveries, making sure that you have robust contracts in place to deal with the impact of lockdown and the changes in how we do business is fundamental.

Governance

Whether you operate a company or are in a partnership, you should ensure that the documents governing the relationship between your business owners are up to date and properly address the ‘what if’ scenarios that, unfortunately, more recently many have been forced to face. How you deal with the incapacity or, in the worst case, death of a business owner can have a substantial impact on its continuity and ability for the business to survive. If you haven’t reviewed your Articles of Association, Shareholders Agreement or Partnership Agreement recently, undertaking this exercise is key to ensure that not only are the relevant concerns covered off, but that the parties clearly understand the documents in order to avoid a dispute in the future.

 

These are just a few key areas that can have a big impact on your business that you need to consider; this is both in terms of your commercial operations but also in avoiding claims and disputes. But looking at the bigger picture, fundamentally ensuring that your operations are up to date and compliant underpins the value of your business and any potential sale.

As you look to 2021 and the future for your business, you may be considering your own exit strategy. Many businesses do continue to adapt and thrive despite the pandemic and you may find yourself negotiating a sale of your business. Whether this is in 3 months or 3 years’ time, your buyer is going to scrutinise your operations from a commercial, accounting and legal perspective. The question is, will you come up to par? Your offer price would be subject to due diligence and if your buyer unearths legal issues in the course of negotiations, you may find your purchase price reduced or that you become exposed through onerous indemnities to get the deal over the line. To avoid this, you need to ensure that the decisions that you make today ultimately are in your businesses’ best commercial interests, and therefore can still stand to benefit you tomorrow.

The sales process can be daunting, but if you plan your exit and prepare you and your business for the sales process you can address issues in advance and put yourself in the best position necessary and maximise on your sale. Therefore by scrutinising your operations now and ensuring that you are adapting to the pandemic in a compliant manner you are protecting not only your business, but also your own interests in the future.

For information on all our Corporate services, contact Holly Threlfall and our Business Services team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

  1. Preparation – as with anything else in life, preparing your business for sale is key. From preparing for the due diligence process to planning the sale structure and your exit plan, this is fundamental to maximise on your sale and prevent your buyer from chipping away at your purchase price.
  2. Value your business and find a Buyer – A Corporate Finance Advisor can assist you with this process and finding the right buyer and structure for your deal. You should ensure that you have in place a comprehensive Non-Disclosure Agreement to protect your company’s information and know-how. Once you have found a buyer and agreed a purchase price and structure in principle, this should be documented in the Heads of Terms. These are largely non-legally binding but it is important to make sure the headline terms are agreed to prevent any protracted negotiations on your deal.
  3. Due Diligence Enquiries ­– Your buyer will raise a series of questions about your business, its assets and historic trading position. It is important to answer these honestly and carefully to ensure that you are not exposed whilst ensuring the Buyer has sufficiently detailed information to assess the purchase. We can assist you with this process through management of a data room for you to provide your responses through.
  4. Legal Documents – Your transaction will contain a series of legal documents from your sales contract (which may take the form of a Share Purchase Agreement or Business Sale Agreement depending on your structure) through to a Disclosure Letter and ancillary documents required to effect your transaction itself. These need to be carefully drafted and negotiated to ensure that you know what you are signing up to.
  5. Completion – This is where all of your hard work pays off! Exchange and Completion is often simultaneous in these deals, so the point where you are legally bound is also the point where you hand over the keys to your business. Of course, in most transaction you usually receive the proceeds of sale (or part of it) and you can begin planning your next endeavours!

For all enquiries relating to the sale or purchase of a business, contact our expert Corporate team on 01604 828282 / 01908 660966 or email Corporate@franklins-sols.co.uk.

As a corporate lawyer I am regularly contacted by clients who have come to an impasse with their fellow business partner and looking for a solution in order for them to resolve the matter at hand and move the company and its business forward. My first question is always “do you have a Shareholders Agreement?”.  Whilst I would love for the answer to be yes, more often the response is “no, but it’s on our to do list”.

Without the presence of a Shareholders Agreement, it is difficult for an appropriate way for the impasse to be addressed without litigation, and whilst we have an amazing litigation team at Franklins who can help navigate and resolve your dispute, I am an advocate that prevention is better than cure.

So what is a Shareholders Agreement? This a private agreement between the shareholders of the company binding them to certain provisions protecting their individual interests and that of the company whilst offering a solution to resolve any issues encountered in a clear and amicable way. No two companies are the same, so when I am assisting clients with putting in place shareholders agreements I understand that the agreement needs to be bespoke to the shareholders and the nature of the company, addressing the following points:

Whilst the above-mentioned is not intended to be an exhaustive list of provision which can be covered, the intention of any well-structured Shareholders Agreement is to safeguard against all eventualities.

Now whilst it is not compulsory for a Shareholders Agreement to be entered into by the shareholders, in view of recent unprecedented times it has become more favourable to have one in place in order to protect their individual interest and that of the company.

At Franklins we understand that you want a quick resolution that is also cost effective. We will work with you to provide specialist advice and ensure a full case plan is prepared to outline your options and next steps. Contact the Dispute Resolution Team on 01604 828282 / 01908 660966 or email Litigation@franklins-sols.co.uk.

letter of claimOn the 4th February 2020, the Court of Appeal considered the enforceability of restrictive covenants in shareholders agreements.  This was in the case of Guest Services Worldwide Limited v. Shelmerdine 2020 EWCA Civ 85.

The Defendant was a consultant in Guest Services Worldwide Limited and a shareholder. Restrictions in the Shareholder Agreement prevented him from dealing with company customers or soliciting customers, employees or suppliers from the company’s business for a period of 12 months after he ceased to be a shareholder.

The Company alleged breach of restrictive covenants.

The consultant argued that on leaving the company, he ceased to be a shareholder and therefore the restrictions did not apply.  Further, that those restrictions of a 12 month non-solicitation period were unenforceable in restraint of trade and unreasonably wide.

In the High Court, the Judge agreed yet the Court of Appeal came to a different view.

It was held that whilst all covenants in restraint of trade were unenforceable unless reasonable, restrictions contained within a shareholders agreement were akin to those in an employment contract. The company had a legitimate interest in preventing the consultant from competing with the business and soliciting clients given the knowledge that was likely to have been acquired; further, the clause within the shareholder’s agreement had been made between experienced commercial parties and finally the period of restraint lasting 12 months was reasonable when protecting a commercial interest in these circumstances.

The 12 month period ran from the time when the consultant ceased to be a shareholder rather than when his consultancy came to an end.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk