There are many reasons why a company might want to buy back its own shares, amongst which might be the desire to get rid of a dissenting shareholder whose presence is damaging to the company's trade and who wants payment in cash for their shares.

A company purchase of own shares can be an efficient way of getting rid of the shareholder in these circumstances without the other shareholders having to find the money to buy them out. It also allows the company to restrict the ownership of the shares and ensures that outsiders who might be inexperienced in the business or unsympathetic to the aims of the other shareholders can be excluded.

A payment for a company's purchase of own shares can be treated as an income distribution or, in the case of an unquoted trading company, as a capital payment. Which treatment is the most tax efficient depends on the personal circumstances of the seller.

It must be emphasised that, for capital treatment to apply, the purchase must benefit the company's trade and, generally, the result of the purchase must be the withdrawal of the seller from the company. If the transaction is part of a scheme simply to enjoy profits without receiving a dividend or to avoid tax, HMRC will not apply capital treatment to the payment.

Getting rid of a dissenting shareholder whose presence is damaging to the company's trade will generally be accepted without question as benefitting the company's trade.