Procedure For Buy Back of Shares By A Private Company, With List of Related Documents to Be Prepared- Buyback of shares is a crucial process for private companies looking to repurchase their own shares from shareholders. This article provides a comprehensive guide to the procedure involved in a buyback, along with the necessary documents and limits that need to be considered. Understanding these steps and requirements ensures a smooth and compliant buyback process for private companies.
PROCEDURE FOR BUY BACK OF SHARES BY A PRIVATE LIMITED COMPANY
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)
BUY BACK LIMIT- 25% OF PAID UP CAPITAL + FREE RESERVES – SR
10% OF PAID UP CAPITAL + FREE RESRVES – BR
* When a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet.
[Post buy-back debt-equity ratio: 2 x PAID UP CAP. + FREE RESERVES = AGGREGATE OF SECURED + UNSECURED DEBTS]
2. BOARD MEETING- AUTHORISING BUY BACK
3. EGM NOTICE
4. CONVENE EGM
5. FILE FORM MGT-14 (in 30 days of EGM)- WITH ROC
6. File Form SH-9 (DECLARATION OF SOLVENCY) – WITH ROC
DECLARATION TO BE VERIFIED BY AN AFFIDAVIT – 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.
7. FILE FORM SH-8 (LETTER OF OFFER) – WITH ROC
* Declaration and Letter of Offer to be signed by a minimum of two directors, one of whom shall be the managing director if any,
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
- 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)
8. Dispatch of Letter of Offer to the Shareholders – IMMEDIATELY AFTER FILING WITH ROC AND NOT LATER THAN 20 DAYS FROM FILING WITH ROC
9. OFFER PERIOD STARTS- MIN. 15- 30 DAYS MAX
* Provided that where all members of a company agree, the offer for buy-back may remain open for a period less than fifteen days.
10. VERIFICATION OF DOCUMENTS – COMPANY SHALL COMPLETE VERIFICATION OF OFFERS RECEIVED- IN 15 DAYS OF CLOSURE OF OFFER
11. EXTINGUISHMENT OF SHARES- MAKE PAYMENT AND EXTINGUISH SHARE CERTIFICATES IN 7 DAYS OF COMPLETION OF BUY BACK
12. FILE FORM SH-11
The company shall file a return in FORM 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.
- A certificate in FORM 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
- Maintain Register of Shares or Securities Bought Back [Company shall maintain a register of shares/other specified securities in FORM SH. 10
DOCUMENTS TO PREPARE:
1. BOARD MEETING NOTICE
2. BOARD RESOLUTION
3. EGM NOTICE
4. EGM RESOLUTION
5. SH-9 DECLATION OF SOLVENCY
6. SH-8 LETTER OF OFFER
7. Details of the company’s promoters
8. Declaration by the auditor
9. Audited financial statements for the last three years
10. Statutory approvals received (if any)
11. Details of the auditor, legal advisors, bankers, and trustees (if any)
12. SH-11 RETURN OF BUY BACK
13. Description of shares or other specified securities bought back
14. Particulars relating to holders of securities before buy-back
15. COMPLIANCE CERTIFICATE.
Conclusion: The procedure for buyback of shares by a private company requires meticulous compliance with various steps and documentation. Adhering to the maximum buyback limits, obtaining necessary approvals, and submitting the required forms within the prescribed timelines are essential to execute a successful buyback. Private companies need to prepare and maintain specific documents, including declarations, resolutions, financial statements, and compliance certificates, to ensure a smooth buyback process and fulfill regulatory obligations.
Author Bio
I have filed the form SH-11, but the effect of the same resulting into reduction in paid up share capital is not reflected in the master data of MCA ? is there any further process for the same?