Quick answer
Yes, a company can borrow to fund a share buy-back, as long as the buy-back follows the Corporations Act process and doesn't leave the company insolvent. For a private company removing one shareholder, that's usually a selective buy-back approved by all shareholders or by special resolution, with ASIC forms lodged beforehand. Lenders look at the company's trading, its ability to carry the new debt and the security, usually with director guarantees.
Key points
- A buy-back is the company buying its own shares; a share sale is the other owner buying them personally.
- Removing one shareholder is normally a selective buy-back, which needs unanimous agreement or a special resolution.
- Form 280 goes to ASIC at least 14 days before the resolution or agreement; cancelled shares are reported within 28 days.
- Directors must make sure the buy-back doesn't make the company insolvent, or they risk personal liability.
- Lenders usually want director guarantees, and often property security, for a buy-back loan.
Yes. A company can borrow to buy back a departing shareholder’s shares, provided it follows the buy-back steps in the Corporations Act and the directors are confident the company stays solvent afterwards. For a private company removing one shareholder, that normally means a selective buy-back, approved by every shareholder or by special resolution, with ASIC notified before it happens.
It’s a common way to tidy up ownership when a co-founder retires, an investor wants out or a relationship has run its course. It’s also a little more technical than one owner simply buying the other’s shares, so it pays to understand the moving parts before you talk to a lender.
Is a buy-back the right structure, or should you buy the shares yourself?
There are two main ways to remove a shareholder from a company.
| Share buy-back | Share sale to remaining owner | |
|---|---|---|
| Who buys | The company | The remaining shareholder personally (or their entity) |
| What happens to the shares | Cancelled | Transferred to the buyer |
| Who borrows | Usually the company, with director guarantees | Usually the buyer personally |
| ASIC steps | Buy-back forms, approvals, then report the cancellation | Share transfer and update of member details |
| Tax | Treatment for the departing shareholder can differ | Generally a capital gains question for the seller |
Neither is always better. A buy-back keeps the debt inside the company that earns the income, which some owners prefer. A share sale keeps the company’s balance sheet untouched but puts the debt on the remaining owner. Your accountant should model both before you settle on one, because the tax outcome for the departing shareholder often decides which they’ll agree to. The broader partner buyout loans page compares these structures alongside partnership and trust exits.
How does a selective buy-back work?
ASIC’s guide to company share buy-backs describes several types. Removing one shareholder from a private company is usually a selective buy-back, because the offer is made to only some shareholders.
According to ASIC, a selective buy-back needs:
- Approval by unanimous agreement of shareholders, or a special resolution passed by at least three-quarters of shareholders, with the selling shareholder and their associates unable to vote.
- Notice to all shareholders with the key information before the vote.
- Form 280 lodged with ASIC at least 14 days before the resolution is passed or the buy-back agreement is entered into. Documents go to ASIC before they go to shareholders. A Form 281 is also needed in some situations.
- Cancellation of the bought-back shares, which changes the company’s share structure and must be reported to ASIC within 28 days.
That 14-day lead time matters for your loan timeline. If the departing shareholder wants their money by a set date, work backwards from it: loan approval, ASIC lodgement, shareholder approval, then settlement.
Why is solvency the big question?
Because directors carry personal risk. ASIC notes that directors must make sure a buy-back doesn’t make the company insolvent, or they may be personally liable, and a liquidator may be able to recover money from the selling shareholders if it does. More broadly, ASIC’s regulatory guide on insolvent trading, RG 217, sets out the duty directors have to prevent insolvent trading.
In practice, that means a buy-back loan has to pass two tests at once:
- The lender’s test: can the company service the new debt from its trading cash flow, with enough buffer?
- The directors’ test: after paying the shareholder and taking on the loan, can the company still pay its debts as and when they fall due?
Both are answered with the same evidence: up-to-date management accounts, a cash flow forecast that includes the new repayments, and a clear picture of existing debts. Your accountant’s sign-off on the forecast is worth having on file.
If the forecast looks tight, that’s a reason to rethink the structure, not to push on. Paying part of the price over time, or having the remaining owner buy some shares personally, can reduce the strain on the company.
What will a lender ask for?
A lender funding a buy-back will usually want:
- The agreed price and how it was reached, ideally with an independent valuation.
- The company’s financials: two to three years of tax returns, BAS, recent bank statements and current management accounts.
- A cash flow forecast showing repayments after the departing shareholder’s salary or drawings are removed and any replacement costs added.
- Details of existing facilities, including any the departing shareholder guaranteed.
- Director guarantees from the remaining directors.
- Security, often property owned by the directors.
When the departing shareholder has guaranteed company debts, they’ll want those guarantees released, which usually means refinancing. The business debt refinance page explains how that’s typically handled.
Got the price agreed and the structure in mind? Start a quick enquiry about the buy-back. There’s no credit check at the first step.
How are buy-back loans usually secured?
Goodwill and the company’s cash flow can support smaller buy-backs. Unsecured options, typically $5k to $500k sized on turnover and bank statements, may suit a modest exit from a company with a strong trading history.
Larger exits are commonly funded with property-secured business loans from $20k to $5m, as first mortgages, second mortgages or caveat loans over residential or commercial property. The property usually belongs to a remaining director, so the company borrows and the director provides the security alongside a guarantee. Our secured business loans page explains how lenders treat each type of security.
What trips up buy-back funding?
Most buy-backs that stall do so for ordinary reasons, not legal ones:
- Agreeing the price before checking the funding. A handshake on a number the company can’t carry leaves everyone stuck. Talk to a lender before the price is final.
- Forgetting the ASIC lead time. Lodging Form 280 late pushes back the approval and the settlement date, and a lender’s approval may have conditions that expire.
- Leaving guarantees unresolved. A departing shareholder who guaranteed company debts will often refuse to sign until they’re released, so the refinance has to be ready at the same time.
- Ignoring the replacement cost. If the departing shareholder did a real job, someone has to do it after they go. Lenders deduct the replacement salary from the cash flow they’re relying on.
- Skipping the tax modelling. If the buy-back produces a worse tax result for the seller than a straight share sale, expect them to ask for a higher price, which changes the loan amount.
A short planning meeting with your accountant and lawyer, before the departing shareholder is promised a date, avoids most of these.
Illustrative example
Illustrative only. Three shareholders own an IT managed services company equally. One wants to leave to start something new. An independent valuation puts her third at $450k. The remaining two prefer the company to buy back her shares rather than buy them personally.
Their accountant prepares a forecast showing the company can carry the repayments after removing her salary and hiring a replacement engineer. The company lodges Form 280, gives notice to shareholders and passes a special resolution, with the departing shareholder unable to vote. The company borrows $450k, secured by a second mortgage over one remaining director’s home, with both remaining directors guaranteeing. At settlement she’s paid, her shares are cancelled and the change is reported to ASIC within 28 days.
Ready to fund a clean exit?
A well-run buy-back lets the business keep moving while a shareholder leaves on fair terms. If you’ve agreed the price and want to see how the funding could be structured, we’d be glad to look at it.
The enquiry takes around 60 seconds and won’t trigger a credit check when you first enquire. Your details aren’t sent to a pile of lenders. A real person works through the company’s position, the buy-back timeline and the security you have, then calls you. Please answer the form accurately, including existing company debts and the agreed price, so we can match the right option first time.
Frequently asked questions
What's the difference between a share buy-back and a share sale?
In a buy-back, the company itself buys the departing shareholder's shares and cancels them. In a share sale, another person, usually the remaining shareholder, buys the shares personally. The choice affects who borrows, the tax outcome and the paperwork.
What approval does a selective buy-back need?
ASIC says a selective buy-back needs either unanimous agreement from shareholders or a special resolution passed by at least three-quarters of shareholders, and the selling shareholder and their associates can't vote. All shareholders must receive a notice with the key information first.
Which ASIC forms are involved?
Form 280 notifies ASIC of the buy-back details and must be lodged at least 14 days before the resolution is passed or the agreement is entered into. Form 281 may also be needed in some cases. After the shares are cancelled, the change is reported to ASIC within 28 days.
Can the company borrow if it's already carrying debt?
It can, but the lender and the directors both need to be satisfied the company can carry the extra repayments and still pay its debts as they fall due. Existing facilities are often refinanced at the same time.
Does the departing shareholder pay tax on a buy-back?
Usually something, but the treatment of buy-back proceeds can differ from a straightforward share sale. Both the company and the departing shareholder should get tax advice before the price and structure are locked in.
Do the remaining directors have to guarantee the loan?
Almost always. Lenders lending to a private company typically ask the directors for personal guarantees, and they may also take security over property the directors own.