What is Buyback of Shares?
Buy back of shares means buying its own shares in the market. Section 68 of the Companies Act, 2013 empowers a company to purchase its own shares or other securities in certain cases.
Buyback of shares is the repurchasing of own shares by a company. In simple words, buyback is nothing but a company buying back its shares from the existing shareholders.
It is the process by which Company buy-back it’s Shares from the existing Shareholders usually at a price higher than the market price. When the Company buy-backs, the number of Shares outstanding in the market reduces/fall.
Provisions for Buy-Back of Shares
- Authorization for Buy-Back:
Articles of Association (AOA) of the company should authorize Buy-Back, if no provision in AOA, then first alter the AOA.
- Approval:
The Buy-back can be made with the approval of the Board of directors at a board meeting and/or by a special resolution (SR) passed by shareholders in general meeting, depending on the quantum of buy back: Approval of Board of Directors- up to10% of the total paid-up equity capital and free reserves of the company. Approval of Shareholders- up to25% of the aggregate of paid-up capital and free reserves of the company.
- Notice of General Meeting:
The notice of the meeting at which the special resolution is proposed to be passed shall be accompanied by an explanatory statement in which the particulars required to be mentioned as per section 68(3) [a to e] and Rule 17(1) [a to n] of Companies (Share Capital and Debentures) Rules, 2014 should be disclosed.
- Methods of Buy-Back:
The Buy-back of shares of private & unlisted public companies may be:
- from the existing shareholders on a proportionate basis;
- by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
- Letter of Offer (Form SH-8):
Before the buy-back of shares, the company shall file with the Registrar of Companies a Letter of Offer in e-form SH-8 and the Letter of Offer shall be dispatched to the shareholders immediately after filing the same with the Registrar of Companies but not later than 20 days from its filing with the Registrar of Companies ensuring the matters as prescribed in the Sub-rule 10 of Rule 17 of The Companies (Share Capital and Debentures) Rules, 2014.
6. Offer Period: The offer for buy back shall remain open for a minimum period of 15 days but not more than 30 days from the date of dispatch of letter of offer. (Period may be less than 15 days, if all the members agree.)
7. Debt-equity Ratio: The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back shall not be more than twice the paid-up capital and its free reserves.
8. Fully Paid-up Shares: Shares to be bought back must be fully paid up.
9. Time limits: Buy-back shall be completed within a period of 1 (one) year from the date of passing of SR or Board Resolution, as the case may be. No offer of buy-back shall be made within a period of one year from the date of the closure of the preceding offer of buy-back, if any.
10. Acceptance of Offer: In case the number of shares offered by the shareholders is more than the total number of shares to be bought back by the company, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.
11. Verification: The company shall complete the verifications of the offers received within fifteen days from the date of closure of the offer and the shares lodged shall https://nad.cfga.gov.mn/be deemed to be accepted unless a communication of rejection is made within twenty-one days from the date of closure of the offer.
12. Payment: Within 7 days from the date of verification of the offers:
- Make payment of consideration in cash to those shareholders whose shares have been accepted.
- Return the share certificates to those shareholders whose shares are not accepted at all or the balance of shares, if partly accepted. https://www.chittorgarh.com/report/latest-buyback-issues-in-india/80/