Buyback of Shares of Private/Unlisted Company

Explore the process of share buyback for private/unlisted companies, covering legal aspects, authorization, limits, and mandatory documentation. Ensure compliance with the Companies Act, 2013, and understand the steps involved, from board resolutions to filing with the Registrar of Companies. Disclaimer: This article is for informational purposes only.

Meaning of Buyback for Private Company or Unlisted Company

Buyback is governed by section 68 of the companies act, 2013, Buy back of shares means purchase of its own shares by a company: When shares are bought back by a company, they have to be cancelled by the company. Thus, share buyback results in decrease in share capital of the company. A company cannot buy its own shares for the purpose of investment. A company having sufficient cash may decide to buy its own shares.

Modes of Buyback of shares

Buy-back of securities can be undertaken by a company through any of the following modes:

1. From the existing shareholders or security holders on a proportionate basis

2. From the open market

3. By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

Process for buy back for unlisted company

1. Authorization by the Articles: Ensure that the articles of the company authenticate the buy-back of share capital and in the absence of relevant provisions to this effect, the articles are to be modified in accordance with the provisions of the Companies Act, 2013 including such authorization.

2. Maximum Limit: Buyback should be 25% or less than its paid up share capital & free reserves (In case of Equity Shares – 25% of paid up equity share capital only by passing Special resolution)

3. Post Buy Back Debt Equity ratio should not exceed 2:1

4. Convene a Meeting of the Board of Directors:  Buy-back being 10% or less of the company’s total paid-up equity capital and free reserves, the proposal for buy-back of share capital can be authorized by the Board by passing a resolution to this effect in its meeting

5. Convene Extra Ordinary General Meeting: the proposal for buy-back of share capital shall also be authorized by a special resolution passed in a duly convened General Meeting.

6. File Form MGT-14 with ROC: File Form MGT-14 with the ROC within 30 days of passing Board Resolution/Special Resolution in Board Meeting/General Meeting as the case may be, along with the requisite documents and fees as specified in the Companies (Registration offices and fees) Rules, 2014

7. File Declaration of Solvency: The company before making any buy-back as per the stipulated provisions shall file a declaration of solvency in Form SH.9 along with the letter of offer in Form SH-8 ensuring the following:

1. Such Declaration and Letter of Offer to be signed by a minimum of two directors, one of whom shall be the managing director if any,

2. Such declaration to be verified by an affidavit to the effect that the Board of Directors has made a full inquiry into the company’s affairs concluding that the company is capable of meeting its liabilities and will not be rendered insolvent within a period of one year from the date of the declaration adopted by the Board.

Mandatory Documents:

• Details of the company’s promoters
• Declaration by the auditor(s)
• Certified true copy of board resolution authorizing buyback
• Copy of the general meeting’s notice issued under section 68(3) along with the explanatory Statement thereto
• Audited financial statements for the last three years

Documents on the basis of applicability as mentioned in the e-Form:

• Buyback details of the last 03 years are mandatory in case the company has done any buyback in the last 03 years
• Management discussion and analysis are mandatory in the case of the listed company
• List of holding and subsidiary companies of the company if applicable
• Unaudited financial statements if applicable
• Statutory approvals received (if any)
• Details of the auditor, legal advisors, bankers, and trustees (if any)
• Any other information as an optional attachment(s) if deemed necessary

8. Dispatch of Letter of Offer to the Shareholders: Letter of offer shall be dispatched to the shareholders or security holders immediately after filing the same with the Registrar of Companies but not later than 20 days from the date of its filing with the Registrar of Companies.

9. Offer Period: The buy-back offer shall remain open for a period of at least 15 days and not more than 30 days from the date of dispatch of the letter of offer to the Shareholders. In case all the members of a company agree, the buy-back offer may remain open for a period of less than 15 days. However it can be opened for less than 15 days.

10. Verification of the Offers :

The company shall complete the verification of the offers so received within 15 days from the offer closure date.

1. The shares or other securities so lodged shall be regarded as accepted unless a communication of rejection is made within 21 days from the offer closure date.

11. Extinguishment of Shares/Securities: The Company buying back its own shares or other specified securities, shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.

12. Closure of the Offer: The Company buying back its own shares or other specified securities, shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.

13. File Form SH.11:

• The company shall file a return in Form No. SH. 11 within 30 days of the completion of buy-back with the Registrar along with stipulated fee and the following documents:
• Description of shares or other specified securities bought back
• Particulars relating to holders of securities before buy-back
• Certified true copy of the special resolution passed at the general meeting
• Certified true copy of board resolution authorizing buyback
• Balance Sheet of the company
• Compliance certificate for the buy-back rules as per the sub-rule (14) of Rule 17 of the Companies (Share Capital and Debenture) Rules, 2014
• Optional attachment(s) if any.

1. A certificate in Form No. SH. 15 shall be annexed to Form No. SH. 11, signed by 02 directors of the company including the managing director, if any, certifying that buy-back of securities has been made in compliance with the provisions of the Act and the Rules made thereunder.

2. Maintain Register of Shares or Securities Bought Back [Company shall maintain a register of shares/other specified securities in Form No. SH. 10 comprising of details like shares/securities so bought, consideration paid, cancellation date of shares/securities, date of extinguishing/physically destroying the shares/securities, and such other particulars.

Such Register of shares or securities bought-back shall be maintained at the company’s registered office in the custody of the Company Secretary or any other person authorized by the board on this behalf

Entries in such register shall be authenticated by the Company Secretary or any other person authorized by the Board on this behalf.

Format of some Documents required to be attached in Form SH-8/SH-9

BOARD RESOLUTION – Buyback

CERTIFIED TRUE COPY OF THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF __________________ PRIVATE LIMITED IN THEIR MEETING HELD ON THURSDAY, __^TH _____________, 20__ AT 11:00 A.M. AT THE REGISTERED OFFICE OF THE COMPANY SITUATED AT ___________ CITY __________, STATE:____

BUY-BACK OF EQUITY SHARES

“RESOLVED THAT in accordance with the provisions contained in Article 4A of the Articles of Association of the company and pursuant to the provisions of Section 68 and other applicable provisions, if any, of the companies Act 2013 and Rule 17 of The Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification and re-enactment thereof, for the time being in force), subject to the consent of the Shareholders in the General Meeting, the consent of the board be and hereby accorded to purchase the company’s own equity shares (hereinafter referred to as the “Buyback”) ___________ (_________(In Words) number of fully paid equity shares of the face value of Rs. ___/- each (representing ___% of the total number of equity shares in the paid-up equity share capital of the Company), at a price not exceeding Rs. ____/- (Rupees _________ only) per equity share (the “Buy Back Offer Price”) payable in cash for an aggregate amount not exceeding Rs. ___________ (Rupees _____________ Only) (the “Buy Back Offer Size”) (being ____% which is less than 25% of the total paid-up equity share capital and free reserves of the Company as per latest audited accounts of the company as on __^th _________, 20__), from the Existing shareholders of the Company on a proportionate basis, and in accordance with the provisions of the Buyback contained in the Act.”

“RESOLVED FURTHER THAT the buyback is being proposed in keeping with the Company’s desire to enhance overall shareholders value, to optimize return to the shareholders and to provide an exit route to the shareholders.” 

“RESOLVED FURTHER THAT the Board confirms that it has made full inquiry into the affairs and prospects of the Company and that it has formed the opinion that:

(a) Immediately following the date on which the Extra Ordinary general meeting will be convened, there will be no grounds on which the Company could be found unable to pay its debts;

(b) as regards the Company’s prospects for the year immediately following the date on which the Extra Ordinary general meeting is convened and having regard to the Board’s intentions with respect to the management of the Company’s business during that year, and to the amount and character of the financial resources, which in the Board’s view, will be available to the Company during that year, the Company will be able to meet its liabilities as and when they fall due and will not be rendered insolvent within a period of one year from that date; and

(c) in forming its opinion, the Board has taken into account the liabilities (including prospective and contingent liabilities), as if the Company were being wound up under the provisions of the Companies Act.

” RESOLVED FURTHER THAT the Board further confirms with respect to buyback process that:

1. The equity shares of the Company are fully paid up.

2. The Company shall not issue or allot any Equity Shares including by way of bonus or convert any outstanding securities into Equity Shares, from this date till the date of closure of this Buy-back.

3. The Company shall not issue fresh Equity Shares within a period of Six Months after the completion of Buy-back except in discharge of subsisting obligations.

4. That there are no defaults subsisting in the repayment of Deposits, redemption of debentures or preference shares or repayment of term loans to any financial institutions or banks.

5. That the ratio of the aggregate of secured and unsecured debts owned by the Company after the Buy-back is not more than twice the paid up capital and free reserves of the Company.”

“RESOLVED FURTHER THAT Mr. ___________________-, Director of the company be and is hereby authorize to digitally sign all the necessary forms required to be filed with the Registrar of Companies, State : _____________, ____________, under the Companies Act, 2013.”

” RESOLVED FURTHER THAT the Board of Directors be and is hereby authorized to do all such acts, deeds, matters and things as it may, in its absolute discretion deem necessary, expedient or proper, to be in the best interest of the shareholders for the implementation of the Buy-back, carry out incidental documentation as also to make applications to the appropriate authorities for their approvals and to initiate all necessary actions for preparation and issue of various documents including Letter of Offer, opening of accounts, declaration of solvency, extinguishment of share certificates and ‘Certificates of Extinguishment’ required to be filed in connection with the Buy-back on behalf of the Board and such other undertakings, agreements, papers, documents and correspondence as may be necessary for the implementation of the Buy-back required to be filed with the Registrar of Companies, and/or other authorities.”

CERTIFIED TRUE COPY

FOR _______________________ PVT LTD

___________________

Director

DIN:____________

Address: _______________,

 _______________________, 

City : __________

Pin Code:__________

State : _____________

Report of Auditors

The Board of Directors

_____________________ PVT LTD

_____________________,

_______________,

City : __________, Pin Code : ______

State : _______________

Dear Sirs,

We, M/s ____________-, Chartered Accountants, (City), Statutory Auditors of the Company, in connection with the proposal of the Company to Buy back its shares and in pursuance of the provisions of Sections 68 of the Companies Act, 2013 and Rule 17 of The Companies (Share Capital and Debentures) Rules, 2014 we have examined the audited financial statements of the Company for the period ended on  __^th _________, 20__ and the relevant records, ratios, analysis, reports, and according to the information and explanations given to us and on the basis of such verification of relevant records as we considered appropriate, report that:

• We have inquired into the Company’s state of affairs:
• In our opinion the amount of permissible capital payment being Rs. ______________ (Rupees _______________ Only) which is _______________% (being less than 25%)of the total paid up capital and free reserves of the Company for the shares to be bought back as given below, is properly determined in accordance with Section 68 of the Companies Act, 2013.

PARTICULARS	AMOUNT (Rs.)
Paid up Share Capital as at 00-00-20	0
Add: Free Reserves as at 00-00-20	0
Total	0

______% of total of share capital and free reserves of Rs. ____________/- is Rs. _____________/-. Maximum shares that can be bought back as per this criteria at Rs. ____/- per share is _________.

• The audited accounts on the basis of which calculation with reference to buy-back is done is not more than six months old from the date of the offer document
• The Board of Directors in their meeting held on __^th_________, 20__ have formed their opinion on reasonable grounds and that the Company will, not, having regard to its state of affairs, be rendered insolvent within a period of one year from the date of the Extra-Ordinary General Meeting of the Members of the Company proposed to be held on __^th_________, 20__

We have not performed an audit, the objective of which would be the expression of an opinion on the specified elements, accounts or items thereof for the purposes of this report. We further state that the Compliance with the provisions of the Companies Act, 2013 and Rules thereof is the responsibility of the Company’s management and accordingly we do not make any representation regarding the question of legal interpretation or representation regarding compliance with company law requirements.

This report is intended solely for your information and for purpose of inclusion in the explanatory statement to the notice for special resolution and the letter of offer for buy-back and is not to be used, referred to or distributed for any other purpose without our prior written consent.

For, __________________

Chartered Accountants 

Firm Reg. No.: _______

Place: _________________

Date: __^th _________, 20__

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