The most common reason that private companies buy back their shares is to buy out one of the shareholders in circumstances where: The other shareholders are not able or willing to purchase his/her shares; or A purchase of the relevant shares by the company is the most tax efficient method of buying out the shareholder. A shareholder may wish to exit the Company for a number of reasons, for example, he may: Have fallen out with the other shareholders; Wish to retire or pursue other business interests; or Want or need to raise cash. In the event that the remaining shareholders do not purchase the exiting shareholder’s shares, the option of the company buying them is normally preferable to selling them to a third party (for companies with a small number of shareholders). NOTE: On a buyback, the purchase price is paid directly to the exiting shareholder(s). This is in contrast to a reduction of share capital which usually results in a distributable reserve which may be available to be distributed to shareholders generally.