Share Buy-Back

14 April 2025 in Business Law | 8 min read | skip to FAQs

This article explores share buy-backs. We outline the five basic types of share buy-backs and provides a summary of the current legal framework and processes that a company may use to buy-back shares from its shareholders.

Definition of Share Buy-Back

Share buy-backs occur when a company buys its own shares back from its shareholders. This has the effect of reducing the share capital of the company.

Section 257A of The Corporations Act 2001 (Cth) (Act) allows a company to purchase its own shares from shareholders, provided that the buy-back does not materially prejudice the company’s ability to pay their creditors, and that the procedure outlined in the Act is complied with.

There are five types, or ways, in which a company may buy-back its shares:

1. Equal Access Buy-backs
2. Selective Buy-backs
3. Employee Share Scheme Buy-backs
4. On Market Buy-Backs
5. Minimum Holding Buy-backs

For each of these types of buy-backs, different rules apply under the Act. This is explained below. Please also see the table at the end of this article which summarises each requirement in greater depth.

The 10/12 Buy-Back Limitation Rule

Section 257B of the Act sets out the 10/12 rule, that stipulates a limit on the shares that can be bought back, the limit equals 10% of shares with voting rights, and applies to the smallest number of those shares in the prior 12-month period. If a company wishes to buy-back more than the 10% threshold, being more than 10% of the smallest number of voting shares of the company within the last 12 months, then the company must comply with more onerous requirements.

Types of Share Buy-backs

Equal Access Buy-Backs

Equal access buy-backs are the most straightforward of all five types of share buy-backs. Companies using this scheme can buy-back ordinary shares by making offers to all holders of ordinary shares to purchase a certain percentage of their shares from them. The Act requires that the percentage of shares, requested in the offer to each ordinary shareholder, must be identical. The offers themselves must also be identical, subject only to differences in accrued dividend entitlements, unpaid amounts and the requirement of the Act that shareholders are left with a “whole number of shares”.

Within the 10/12 Threshold

For buy-backs within the 10/12 threshold the requirements that need to be satisfied are that the company:

1. Issues with the offer, the statement of disclosure (see table below).
2. Lodges the offer and accompanying documents with ASIC.
3. Lodges all required documents with ASIC before the 14-day limit (see table below).

Not Within the 10/12 Limitation Rule

Where the company wishes to purchase a greater number of shares than the 10/12 threshold, the requirements that need to be satisfied are that the company:

1. Issues with the offer, the statement of disclosure (see table below).
2. Has the terms of the agreement passed by an ordinary resolution and complies with the requirements of s 257C of the Act (see table below).
3. Lodges the offer and accompanying documents with ASIC.
4. Lodges all required documents with ASIC before the 14-day limit (see table below).

Selective Buy-Backs

Selective buy-backs are where a company makes different offers to a number of shareholders of its choosing. For this buy-back type, the 10/12 limitation does not apply. Instead, the requirements that need to be satisfied are that the company:

1. Issues with the offer, the statement of disclosure (see table below).
2. Has the terms of each buy-back agreement passed by a special resolution and complies with the requirements of s 257D of the Act (see table below).
3. Lodges the offer and accompanying documents with ASIC.
4. Lodges all required documents with ASIC before the 14-day limit (see table below).

Employee Share Scheme Buy-Backs

Employee share scheme buy-backs are where a company buys back shares that have been held by, or on behalf of:

1. Employees of the company itself or a related body corporate; or
2. Salaried employed Directors of either the company or a related body corporate.

Within the 10/12 Threshold

For buy-backs within the 10/12 threshold the only requirements that must be satisfied are that the company:

1. Has the terms of the buy-back agreement(s) approved at a general meeting; and
2. Lodges a notice to ASIC, that the company intends to carry out the buy-back, before the 14-day limit.

Not Within the 10/12 Limitation Rule

Where the company wishes to purchase a greater number of shares than the 10/12 threshold, the requirements that need to be satisfied are that company:

1. Has the terms of the buy-back agreement passed by an ordinary resolution and complies with the requirements of s 257C of the Act (see table below).
2. Lodges all required documents with ASIC before the 14-day limit (see table below).

On-Market Buy-Backs

On-Market Buy-backs occur where the company is a listed corporation on a financial market, such as the stock exchange, and during the ordinary course of trading on that market the company makes an offer to buy shares listed by its shareholders. The rules of the particular financial market, such as the stock exchange, apply to on-market buy-backs.

A company may also buy-back on-market shares listed in a financial market outside Australia which ASIC declares in writing to be an approved overseas financial market. This declaration by ASIC may be subject to conditions and notice of the declaration must be published in the Commonwealth Gazette.

This buy-backs need only be approved by the company during a general meeting if they exceed the 10/12 threshold.

Within the 10/12 Threshold

For buy-backs within the 10/12 threshold the only requirement that must be satisfied is that the company lodges a notice to ASIC, that the company intends to carry out the buy-back, before the 14-day limit.

Not Within the 10/12 Limitation Rule

Where the company wishes to purchase a greater number of shares than the 10/12 threshold, the requirements that must be satisfied are that the company:

1. Has the terms of the buy-back agreement(s) passed by an ordinary resolution and complies with the requirements of s 257C of the Act (see table below).
2. Lodges all required documents with ASIC before the 14-day limit (see table below).

Minimum Holding Buy-backs

Minimum holding buy-backs occur where the listed company buys back all of a shareholder’s shares, if that parcel of shares is a less than a marketable parcel (basically unmarketable), as defined by the rules of the relevant financial market.

The 10/12 threshold rule does not apply to this type of buy-back and a company does not need to have the buy-back agreements approved at a general meeting.

Effects of Buy-Backs on the Company

Once the buy-back agreement is entered into between a shareholder and the company, the rights regarding the shares in question are subsequently suspended and, immediately after the company registers the transfer of the shares into the company’s name, the shares must be cancelled. Upon the cancellation of the shares, the company must notify ASIC of this cancellation.

Table of Requirements

The requirements under each of the five buy-back types vary, however, as shown above, many of these requirements overlap between the five buy-back types. Please find an in-depth summary of each requirement in the table below.

Ordinary Resolution	Where the company wishes to exceed the 10/12 threshold, the company is required to comply with the following requirements under s 257C of the Act, namely that the company must: Have the terms of the buy-back agreement approved by an ordinary resolution (50% of the votes) passed at a general meeting of shareholders of the company either, prior to the agreement being entered into or that agreement is conditional upon such subsequent approval; Include, with a notice of the meeting, a statement setting out all information known by the company about the share buy-backs that is material to shareholders’ decision making on how to vote on the resolution.  It should be noted though, that if the company has previously disclosed this information to its shareholders, it need not do so again when issuing the notice of the meeting; and Prior to issuing the above notice, the company must lodge with ASIC a copy of: The notice of the meeting; and Any documents relating to the buy-back that will be included with the notice of the meeting sent to the shareholders.
Special Resolution	Where the company is required to satisfy the following requirements under s 257D of the Act, namely: That the terms of each buy-back agreement are approved by way of: A special resolution (75% of the votes) passed at a general meeting of shareholders of the company, with no votes being cast in favour of the resolution by any shareholder whose shares are proposed to be bought back or by their associates; or A resolution agreement, by all ordinary shareholders, at a general meeting; or The agreement must be conditional on such approval. Include, with a notice of the meeting, a statement setting out all information known by the company about the share buy-backs that is material to shareholders’ decision making on how to vote on the resolution.  It should be noted though, that if the company has previously disclosed this information to its shareholders, it need not do so again when issuing the notice of the meeting. Prior to issuing the above notice, the company must lodge with ASIC a copy of: The notice of the meeting; and Any documents relating to the buy-back that will be included with the notice of the meeting sent to the shareholders. ASIC may exempt a company from the above requirements.  If it does so the exemption must be in writing and be granted before the buy-back agreement has been entered into and may be granted subject to conditions.
Offer Documents Lodgement with ASIC	Where the Offer Lodgement Requirement applies, a company must lodge the following with ASIC prior to entering the buy-back agreement: A copy of the offer document, which sets out the terms of the offer; and Any document that is to accompany the offer.
14 Days’ Notice	Where the 14 days’ notice applies, the company must lodge required Offer and Accompanying Documents with ASIC prior to either: The resolution (either ordinary or special) being passed, if the buy-back agreement is conditional on the passing of the resolution. If the company wishes to enter into a buy-back agreement within a timeframe that is less than 14 days after the lodging documents, then the company must also lodge a notice to ASIC of its intention to carry out the buy-back.
Statement of Disclosure	Where the further disclosure requirement applies, a company must include with its initial offer to a shareholder: A statement which sets out all known information by the company which is material to the shareholder’s decision of whether to accept the offer.

Key Takeaways

1. Types of Buy-Backs: There are five main types: Equal Access, Selective, Employee Share Scheme, On-Market, and Minimum Holding, each with different rules.
2. 10/12 Limitation: Companies that buy-back within the 10/12 limitation rule have less requirements that they need to follow.
3. Strict Procedure: Companies must comply with the procedure set out in the Act, largely to protect other shareholders and creditors.
4. Impact: Repurchased shares by a company are cancelled as a result, and companies must notify ASIC of the cancellation.

How can BSM Sydney Lawyers assist you?

The business lawyers at BSM Sydney Lawyers have several decades of experience in company law and can advise you on all aspects of share buy-backs. Brander Smith McKnight Lawyers provide legal expertise with a personalised, highly responsive, fast turnaround service. Our lawyers remain up to date with legislation that affects business owners and are committed to providing the best commercial advice personally tailored to your business. BSM business lawyers Sydney provide a 20-minute complementary consultation and can discuss whether share buy-backs may be a suitable strategy for your company.

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