On the Company | Buyback screen, you can set up the plan to repurchase shares from
shareholders. Here's what you can define:
Timing: Select the year the buyback will start.
Shares: Choose the type of share (common or preferred) and, for common shares, specify the
share class name.
Seller: Identify the shareholder who will be selling the shares.
Quantity: Define the percentage of shares to be bought back.
Payment: Select the method of payment (cash or other available options).
To open the share Buyback option you can either create a new company by going to the (+) in the bottom right of your screen and selecting the corporate tile.
OR to open an existing corporation in your client's plan select the corporation from the dashboard.
Once open you can select "Buyback Shares" from the left-hand menu.
In the below example, the Family Car Shop will attempt to repurchase 40% of John's Preferred Share Value starting in the year 2030 (when John is 50 years old) over a period of four years.
Note: The user inputs could also be adjusted to buy back Common Shares instead. Example below.
When setting up a buyback of Common Shares, the software allows users to select the specific Share Class Name to be repurchased if applicable. The system will then buy back shares from all owners holding shares of that class during the specified year.
Additionally, when buying back Common Shares, the company has two payment options: paying in
cash or converting to an equivalent value of Preferred Shares. Example below.
Implementation of Share Buyback
The share buyback process involves several steps. First, the system calculates the total dollar value by multiplying the number of shares repurchased by the share price. These funds are then allocated to cover the buyback and deposited into the owner's default cash account. It's important to note that if common shares are converted to preferred shares during the buyback, the original cost basis of the common shares is carried over to the new preferred shares. Tax implications may arise, however. If the buyback price exceeds the original cost of the shares, the difference is considered a dividend and factored into the owner's year-end tax calculations. Additionally, for cash buybacks, the buyback amount is reflected in the company's annual cash flow chart.
The screenshot below displays the cash flow impact of the common share buyback in 2030. A total of $36,000 is reflected in the Cash Flow section. The Year View | Corporate tab provides a detailed breakdown of John's ownership. This breakdown includes the common share value and cost basis before and after the buyback transaction.
Considerations
Minimum Buyback: For common share buybacks, you can only repurchase whole shares, not
fractions.
Insufficient Funds: If the company doesn't have enough money to complete the buyback, the
transaction won't be processed. A notification ("Calc Note") will appear on your Dashboard Chart to inform you.
Scheduling Limits: Only one company ownership transfer or share buyback can be scheduled per year.
Company BuyBack Tax: The two-per-cent tax on share buybacks will be implemented in the second
phase of the share buyback feature.