CS Monika Jain
Buy Back means repurchase by a company of its own shares in order to reduce the number of shares in the market. Buy Buck is exercised either to increase the value of shares or to eliminate the threats from the shareholders who may be looking for a controlling stake. The provisions relating to buy back of securities are governed by the provisions of Section 68 of Companies Act, 2013 and Rule 17 of Companies (Share Capital and Debentures) Rules, 2014. Listed companies have to comply with the rules laid down by SEBI also in this behalf.
Conditions for Buy Back Offer:
i. Securities offered for buy-back must be fully paid-up.
ii. The buy-back must be authorized by the articles of association of the company.
iii. There must be a gap of at least one year between two buy back offers by the company.
iv. Buy back must be authorized by a Special Resolution. But if the buy-back amounts to 10% or less of the total paid-up equity capital and free reserves of the company then the Board resolution is enough and the company is not required to pass any special resolution.
v. A company can buy-back up to 25% of the aggregate of paid-up capital and free reserves of the company. However, in case of buy back of equity shares the limit of 25% of paid up capital shall be construed as 25% of Equity paid up capital.
Source: The buyback can be financed by the company from
(a) its free reserves;
(b) the securities premium account; or
(c) the proceeds of the issue of any kind of securities other than those proposed to be bought back. For example, if the company wants to buy back its equity shares than it can’t do so from the proceeds of an earlier issue of equity shares.
Offer of Buy Back
The company can buy back its securities
(a) by making an offer to its existing shareholders on proportionate basis; or
(b) from open market; or
(c) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
1. As already stated, buy-back must be authorized by the articles of association of the company. Hence the first step is to check the articles. If the articles provides for the same then its ok otherwise alter the articles by following the provisions under section 14.
2. Hold a Board Meeting by giving at least 7 days notice as per the provisions of section 173(3), Approve Notice of EGM and Issue notice of EGM to all members, Directors and Auditors.
3. Hold General Meeting and pass special resolution authorizing the buy-back.
4. File with Registrar of Companies a letter of offer in Form No. SH.8 and a declaration of solvency in Form No. SH.9 verified by an affidavit to the effect that the company will not be rendered insolvent within a period of one year from the date of declaration.
5. Dispatch letter of offer to the shareholders within 21 days of its filing with ROC.
6. The offer for buy-back shall remain open for a period of not less than fifteen days and not exceeding thirty days from the date of dispatch of the letter of offer.
7. Open a separate bank account immediately after the date of closure of the offer and deposit therein funds adequate to meet out the buy-back obligation.
8. Complete the verification of offers received within 15 days from the date of closure of the offer and make payment to those security holders whose securities have been accepted or return the share certificates to the security holders whose securities have not been accepted within 7 days from the end of above said 15 days.
9. File with ROC a return in Form No. SH.11 within 30 days of completion of buy back giving details of results of buy back.
10. Extinguish and physically destroy the shares so bought back within 7 days of the completion of buy-back.
11. Maintain a register of securities bought-back in Form No. SH.10.
The company shall complete buy-back within a period of one year from the date of passing of special resolution, or board resolution as the case may be.
Conditions to be complied after buy back
1. The company shall not make a further issue of the same kind of shares within a period of six months except
2. The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.
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