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ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Tarn Ltd proposes an off-market purchase of shares from its director, Ms Okoye, under a contract. Which of the following must be satisfied for the purchase to be valid under typical company law rules?

An off-market purchase needs the contract to be approved beforehand by a special resolution. The selling shareholder cannot use their votes to carry it, so if their votes were decisive the resolution fails. Board approval alone or mandatory court approval is not the rule.

  1. AOnly the board must approve it; Ms Okoye may vote on it freely as a director
  2. BThe contract must be approved in advance by a special resolution of the shareholders, and Ms Okoye's shares cannot be counted if her vote made the differenceCorrect
  3. CCourt approval is always required before any off-market purchase

Explanation

An off-market purchase requires prior approval of the contract by special resolution. The selling shareholder's votes are excluded if the resolution would not have passed without them, to prevent the seller deciding the outcome. Court approval is not generally required for this step.

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