ACCA Advanced Taxation (ATX) Practice Exam

What should an individual not own more than following a buyback of shares?

1. 20% of shares in the company

2. 30% of shares in the company

3. 50% of shares in the company

4. 75% of shares in the company

The correct answer is: 30% of shares in the company

In the context of a share buyback, regulations often stipulate that in order to avoid certain tax implications and maintain a specific structure of ownership post-buyback, an individual should not exceed owning a defined percentage of shares in the company. When a company undertakes a buyback, it reduces the number of outstanding shares. The tax regulations may specify thresholds to ensure that ownership does not become overly concentrated, which could lead to tax avoidance strategies or the abuse of capital gains benefits. In many jurisdictions, a common threshold is that an individual should not own more than 30% of the company's shares after a buyback. This limit is intended to prevent the excessive concentration of ownership that might disturb the balance of control and governance within the company. Thus, the correct response indicates that an individual should not exceed 30% ownership following a buyback of shares to comply with these statutory limits and maintain the integrity of ownership structures within the firm.