ACCA Applied Skills · Corporate and Business Law (Global) · Share capital
Brightwell plc, a public company, wishes to buy back its own shares. It has distributable profits of 900,000 and a share premium account of 400,000. It plans to buy back shares at a total price of 500,000, with nominal value of 200,000, and has no new share issue. Which funding is lawful for this public company?
A public company can fund a buyback only from distributable profits or the proceeds of a fresh share issue made for that purpose. It cannot use share premium or pay from capital through a solvency statement, which is a private company option.
- AUse the share premium account, as it is a capital reserve available for buybacks
- BUse distributable profits, as a public company may fund a buyback only from distributable profits or the proceeds of a fresh issueCorrect
- CUse a solvency statement to fund the buyback from capital
- DUse the capital redemption reserve before any buyback occurs
Explanation
A public company may purchase its own shares only out of distributable profits or the proceeds of a fresh issue made for the purpose. Payment out of capital via a solvency statement is available to private companies only. Share premium cannot fund a buyback here, so 500,000 comes from the 900,000 profits.
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