Chapter 2J governs the way that a company can enter into transactions which affect its share capital.

A company can reduce its share capital if:

• the proposed reduction falls within one of the prescribed provisions in Pt 2J.1, Div 3 ; or

• the proposed reduction satisfies Pt 2J.1, Div 1 and the company obtains shareholder approval.

See Capital reduction.

A reduction in share capital can be either an equal or selective reduction. The process for obtaining shareholder approval and the type of resolution required to be passed for each share capital reduction depends on the type of reduction.

Failure to obtain shareholder approval prior to reducing share capital attracts serious consequences.

See Capital reduction.

The Corporations Act 2001 (Cth) prohibits a company from acquiring shares in itself except as permitted within the Act.

A company is permitted to buy-back its own shares if:

• the buy-back does not materially prejudice the company's ability to pay its creditors; and

• the company follows the procedures set out in Ch 2J.1, Div 2 .

The procedure a company must follow in buying back shares differs depending on:

• the number of votes attaching to voting shares the company proposes to buy-back;

• the type of buy-back; and

• whether the company is listed on the ASX.

The provisions recognise five basic types of share buy-back: equal access, on-market, employee share scheme, selective buy-back and minimum holding (previously called “odd lot”).

Different rules also apply to share buy-backs equal to or below the "10/12 limit" and those which exceed the "10/12 limit".

See Share buy-backs.

A minimum holding buy-back refers to a buy-back of shares in a listed company which cannot otherwise be sold because they are below the "marketable parcel" value within the rules of the relevant financial market.

See Minimum holding buy-backs.

An equal access buy-back scheme is a buy-back offer on the same terms and for the same percentage of shares made to every shareholder. All shareholders must be given a reasonable time to accept the offer, at the conclusion of which the buy-back agreement is effective.

Shareholder approval is required if the buy-back would exceed the 10/12 limit.

See Equal access buy-back scheme.

An employee share scheme buy-back enables a company to buy-back shares held by current or former employees under an approved employee share acquisition scheme.

An ordinary resolution of shareholders is required if the buy-back would exceed the 10/12 limit.

See Employee share scheme buy-back.

An on market buy-back is one conducted by a company listed on the ASX. It enables a listed company to buy its shares in the ordinary course of trading on the stock exchange, provided that it complies with the ASX Listing Rules as well as the Corporations Act 2001 (Cth).

An ordinary resolution of shareholders is required if the buy-back would exceed the 10/12 limit.

See On market buy-back.

In a selective buy-back only one or some shareholders are entitled to participate. As shareholders are generally not treated equally in selective buy-backs, the rules regulating the buy-back are more stringent compared to other forms of buy-backs.

For a selective buy-back, the terms of the buy-back agreement must either:

• be approved by a special resolution passed at a general meeting of the company, where no votes are cast in favour of the resolution by any person (or their associate) whose shares are proposed to be bought-back; or

• unanimous resolution of all ordinary shareholders at a general meeting.

However, there are however some circumstances in which a company may be able to obtain relief from ASIC from some or all of the shareholder approval requirements for a selective buy-back.

See Selective buy-backs.

Listed companies have additional requirements which must be met regarding share buy-backs.

See Additional requirements for listed companies.

Apart from equal access scheme buy-backs (in which the date on which the offer will close must be stated), it is possible for a company to make an offer to buy-back shares over a continuous period of time.

See Future buy-backs.