Can we buy back shares from a co-founder who has left?
By SuLe · Updated 7 May 2026
Yes, but only on the right terms: a company buyback under Companies Act 2006 Part 18 normally needs distributable profits or a fresh share issue to fund it, and shareholder approval with the seller unable to vote. Where a young company has no profits, transferring the shares to the remaining founders is often the simpler route.
Key facts
- A company buyback runs under Companies Act 2006 Part 18: funded from distributable profits or a fresh issue, shares fully paid, payment on completion, shareholder approval with the seller unable to vote.
- Bought-back shares are usually cancelled, with form SH03 (stampable if over £1,000) and SH06 filed at Companies House.
- If the articles allow it, a small cash buyback is possible without distributable profits — capped at the lower of £15,000 or 5% of share capital per financial year.
- The alternative is a transfer to remaining founders or a new hire — a stock transfer form, with 0.5% stamp duty only where the price exceeds £1,000.
- A leaver can only be compelled to sell if your shareholders' agreement or articles say so.
Can the company buy back a departed co-founder's shares?
Yes — a company can purchase its own shares, but not casually. The Companies Act 2006 Part 18 regime sets out conditions that exist to protect creditors and other shareholders, and they must all be met.
First, though, check you can force the sale at all. Shares belong to the person, not the role, so unless your shareholders' agreement or articles contain a compulsory buyback or transfer obligation, the departed founder does not have to sell anything.
Assuming the obligation exists, a buyback is one of two main routes to actually recover the shares — the other being a transfer to the remaining founders, covered below.
What does the Companies Act require for a buyback?
Part 18 sets the rules. The buyback must normally be paid for out of distributable profits or the proceeds of a fresh share issue; the shares being bought must be fully paid; and payment must be made on completion, not in instalments.
Shareholders must approve the buyback, and the selling founder cannot vote their own shares on it. Once complete, the shares are usually cancelled, and the company files form SH03 — stampable where the consideration exceeds £1,000 — together with SH06 to record the cancellation at Companies House.
Miss a condition and the buyback can be void, so the paperwork and funding source need to be right before you complete, not fixed afterwards.
What if the company has no distributable profits?
That is the usual position for an early startup, and it rules out the standard buyback route. Two options remain.
You can fund the buyback from a fresh issue of shares, using the new money to pay the leaver. Or, if your articles specifically authorise it, you can use the small-buyback route: buying back shares for cash without distributable profits, but only up to the lower of £15,000 or 5% of share capital in a financial year. With the tiny share capitals most startups have, 5% is a very small number.
| Funding route | Requires distributable profits? | Practical for a young startup? |
|---|---|---|
| Standard Part 18 buyback | Yes | Rarely — most have none |
| Buyback from a fresh share issue | No, but needs new money in | Sometimes |
| Small buyback (if articles allow) | No | Only for very small amounts — capped at the lower of £15,000 or 5% of share capital |
| Transfer to remaining founders (not a buyback) | No | Often the simplest route |
What is the alternative to a company buyback?
A share transfer. Instead of the company buying and cancelling the shares, the leaver transfers them to the remaining founders or an incoming hire at an agreed price.
This sidesteps the distributable-profits problem entirely, because the company is not the buyer. It is a simple stock transfer form (a J30), updating the register of members and cap table, with stamp duty at 0.5% (rounded up to the nearest £5) payable only where the consideration exceeds £1,000.
For unvested shares clawed back at nominal value — often a few hundred pounds or less — the price usually falls under the £1,000 threshold, so no stamp duty arises at all.
Worked example
Ines and Marco co-found a proptech company with 1,000,000 ordinary shares of £0.01 each — £10,000 of share capital — with vesting and leaver provisions. Marco resigns early as a bad leaver, holding 200,000 vested shares that cost him £2,000.
The company has no distributable profits, so a standard buyback is out. The small-buyback route is capped at the lower of £15,000 or 5% of £10,000 — just £500 — far below Marco's £2,000 price, so that will not work either.
Instead, Ines buys Marco's 200,000 shares personally at the bad-leaver price of £2,000 (the lower of cost and market value). She pays stamp duty at 0.5% — £10, rounded to the nearest £5 — files nothing at Companies House for the transfer itself, and updates the register of members and cap table.
Where founders go wrong
Assuming the company can always buy back.
Without distributable profits, a standard Part 18 buyback is off the table. Check the funding source first.Forgetting the seller cannot vote.
The departing founder's shares cannot be counted in approving their own buyback. Structure the resolution correctly.Trying to force a sale with no obligation in the documents.
If there is no compulsory buyback or transfer clause, the leaver keeps their shares. The provisions must pre-date the departure.Overlooking the filings and stamp duty.
Buybacks need SH03 and SH06; transfers over £1,000 attract 0.5% stamp duty. Handle both properly to keep the register clean.
Related questions
Can a company buy back its own shares?
Yes, under Companies Act 2006 Part 18. The buyback must normally be funded from distributable profits or the proceeds of a fresh share issue, the shares must be fully paid, payment is due on completion, and shareholders must approve it — with the departing seller unable to vote on their own buyback. [More: What happens to a co-founder's shares if they leave?]
What if the company has no distributable profits?
Most early startups don't. You can fund a buyback from a fresh share issue, or use the small-buyback route if your articles allow it — capped at the lower of £15,000 or 5% of share capital in a financial year. Otherwise, transferring the shares to remaining founders is usually simpler.
Is buying back shares the same as transferring them?
No. A buyback is the company purchasing and cancelling its own shares under Part 18. A transfer moves shares from the leaver to another person — a remaining founder or new hire — using a stock transfer form. Transfers avoid the distributable-profits rules, which is why startups often prefer them. [More: How do I add a new co-founder after incorporation?]
Is stamp duty payable when buying back founder shares?
It can be. Share buybacks are reported on form SH03, which is stampable where the consideration exceeds £1,000, and transfers attract stamp duty at 0.5% (rounded up to the nearest £5) on consideration over £1,000. Nominal-value clawbacks of unvested shares usually fall under the threshold.
Does the departing co-founder have to agree to sell?
Only if your documents make them. Shares belong to the person, so without a compulsory transfer or buyback obligation in the shareholders' agreement or articles, a leaver cannot be forced to sell. This is exactly why leaver and vesting provisions need to be in place before anyone leaves. [More: What are good leaver and bad leaver provisions?]
A share buyback done without the right funding source or approvals can be void — leaving the leaver still on your register and the deal unwound at your next round. A SuLe solicitor can pick the right route, run the Part 18 mechanics or the transfer, and get the filings and stamp duty right. Get your founder documents reviewed — book a free consultation and take the shares back cleanly.
Keep reading: What happens to a co-founder's shares if they leave? · What are good leaver and bad leaver provisions? · What is reverse vesting? · How do I add a new co-founder after incorporation? · How do I remove a co-founder or director legally? · What is a cap table and how do I keep it clean?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
