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Selling a business? Involved in a management buy out? We've successfully advised on over £20 billion of deals... more

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For help and advice on start-ups, LLPs, Shareholders Agreements, Returning Shareholders Funds and Closing Companies ... more

Returning Shareholders Funds

Returning shareholders funds involves complex legal issues and detailed tax planning, and includes:

  • The repurchase of shares,
  • The redemption of shares, and
  • The use of dividends and other methods of extracting shareholder value.

Our specialist corporate solicitors will work closely with you and your other professional advisers, including accountants and financial advisers, to ensure that these complex legal issues are dealt with correctly. The aim is always to maximise the returns to shareholders.

Why do Companies Choose to Return Shareholders Funds?

There are a number of reasons why a company decides to return surplus cash to its shareholders, detailed below, the first two of which derive directly from our core activity of selling businesses and business acquisition.

  • It has raised funds for a business acquisition which never took place and no longer needs that money,
  • It sold a non-core subsidiary of the business, but does not have an immediate use for the proceeds from the sale,
  • It is using the return of funds to its shareholders to gather their support in a tactical defence to an unwelcome takeover offer,
  • Following strong growth and the building up of a cash reserve, it has sufficient funds to return some of it to shareholders without compromising its investment programme.

What are the Main Methods of Returning Shareholder Value?

These are the main existing methods:

  • Cash dividend. This is the simplest method and is often done as a one-off ‘special interim dividend’.
  • Share buy-back. This route is when the company is offering to buy back shares from its shareholders. Shareholder participation is optional.
  • Reduction of capital. Both of the above two methods require the company to have sufficient distributable profits to cover the amount of the return. If a company has no such available profits, or it wishes to preserve them for future use, then reduction of capital is an alternative route, where the value is returned from its capital reserves via a reduction of capital. This route requires court approval for public companies.
  • Scheme of arrangement. This involves the insertion of a new holding company into the existing corporate structure. If done correctly, this can result in the new holding company having much larger capital reserves than the original company, which can then be used to implement a return via a capital reduction. This is a complex process which is probably only cost effective for large public companies that wish to make a significant return at a time when there are no distributable profits available, or when the company has creditor protection issues.

Which route a company chooses depends on the circumstances at the time, and the company’s objectives in the following areas:

  • The Tax consequences.
  • Does the company have sufficient reserves available?
  • Timing
  • Will any external consent be required?

As always, we spend time understanding the issues and objectives before recommending the most appropriate method.

Contact us or call us on +44(0)121 214 2490 for a FREE initial discussion if you are considering returning shareholders funds.