Understanding the Legal Framework for Share Buybacks
Appraisal Remedy (Section 98)
Voluntary Buyback (Section 66)
What Happens to Shares After a Buyback?
Cancellation of Shares
The Companies Act provides that, subject to sections 69 and 70, shares acquired by the company are deemed cancelled immediately on acquisition. When shares are cancelled:
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They cease to exist
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All rights attached to the shares expire
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The company’s issued share capital is reduced
These cancelled shares revert to authorised but unissued share capital. This means the company may reissue these shares in the future, subject to constitutional requirements.
Treasury Shares: Limited to 5 Percent of Issued Share Capital
In certain circumstances, the Act allows a company to retain a portion of repurchased shares as treasury shares, subject to a statutory cap of up to 5 percent of its issued share capital.
A treasury share:
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Is fully paid and already issued
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Does not carry voting rights
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Cannot participate in dividends or distributions while held by the company
Treasury shares remain issued shares and are not cancelled, meaning they do not reduce the company’s stated capital. They provide flexibility for future transactions, such as employee share schemes or resale.
"Share buybacks can reshape your company’s ownership, capital structure and governance, but only if you understand the legal rules that guide them."
Why Understanding Buybacks and Treasury Shares Matters
Share buybacks, cancellations, and treasury shares carry important implications for ownership structure, governance, and capital management. Companies must ensure that each action is authorised, compliant and aligned with their constitution.
