Under s.691(1) of the Companies Act 2006, a limited company may not purchase its own shares unless they are fully paid. But does this extend to the premium or does it only apply to the nominal value of the shares to be repurchased? What does fully paid mean?

In the absence of any clarification in the Companies Act 2006 as to what is meant by the term “fully paid”, we can only assume that this must mean that the price payable for the shares, comprising the nominal value of the shares and any premium agreed to be paid, has been paid in full.

This view is shared by Tina Kyriakides of Radcliffe Chambers who, when asked by Thomson Reuters Practical Law, cited the following supporting provisions from the Companies Act 2006:

  • “Under section 9(4)(a), when applying to register a company, among other things, a statement of capital is required to be delivered to the registrar of companies. Section 10(4)(b) provides that with respect to each subscriber, it must state the amount to be paid up and the amount (if any) to be unpaid on each share (whether on account of the nominal value of the share or by way of premium).
  • Section 582 provides that shares allotted, and any premium on them, may be paid up in money or money’s worth.
  • Section 583(2) provides that a share in a company is deemed paid up (as to its nominal value or any premium on it) in cash, or allotted for cash, if the consideration received for the allotment or payment up is a cash consideration.
  • Section 586(1) provides that a public company must not allot a share except as paid up at least as to one-quarter of its nominal value and the whole of any premium on it.
  • Section 670(2) provides that a public company may take a charge in respect of its shares if the shares are not fully paid up and the charge is for an amount payable in respect of the shares,”

As well as the following in respect of companies which have adopted model articles: “Further, many private limited companies will now adopt as their articles of association the model articles of association for private companies limited by shares (Model Articles). Article 21 of the Model Articles permits a company to issue shares only on the basis that both the nominal value and any premium are fully paid (see also article 24(2)(c)). Article 1 of the Model Articles defines “fully paid” in relation to a share as meaning that the nominal value and any premium to be paid to the company in respect of that share have been paid to the company.”

To this end, it is of paramount importance that such shares are “fully paid” in order for the share buyback to be successful.

If you would like to discuss any of the matters raised in this article please contact Sing Li.