Sharesies will let affected shareholders know if a capital return or a share buyback is taking place. When a capital return or share buyback is announced, companies will usually highlight important information—such as the proportion of shares being bought back, the date the offer will go ahead, and the price you’ll get per share.
Share buybacks
Like a dividend payment to shareholders, a share buyback is another way for companies to distribute cash to the owners of that company (the shareholders).
In a share buyback, investors will be offered the option to sell some, or even all, of their shares back to the company. If the investor decides to take part in the share buyback, they sell their shares to the company for the agreed price and receive cash in exchange. If the investor decides to not participate in the share buyback, they’ll retain their shares—however, because there are fewer shares outstanding, the investor will now own a greater proportion of the company than before.
There’s heaps of factors that determine the price per share set by the company. The price offer may differ from the current share price for the company, such as how the market responds to the offer announcement.
Capital returns
Capital returns (or return of capital) is a distribution of the ‘principal’ back to shareholders; the ‘principal’ is the money originally invested by the shareholder, rather than accumulated earnings and profits.
Capital returns are treated slightly differently to share buybacks from a tax perspective. This is because the intention of a capital return is to distribute the ‘principal’ back to shareholders, rather than the profits. This means that they are generally not subject to tax the way dividends (and share buybacks) are.
Unlike with a share buyback, you can’t opt out of taking part in a capital return.
Capital returns happen on a pro-rata basis, so that everyone ends up with the same proportionate shareholding as before the cancellation. You may end up with fractional shares, and you’ll be paid proportionally for any cancelled fractional shares. If you own shares in a company offering a capital return, we’ll sort everything for you.
We’re always here to help—if you have any questions, please contact our team at help@sharesies.co.nz. 👋