Buyback of Securities of Unlisted Company includes the Provision of Chapter IV-Share Capital and Debentures and The Companies (Share Capital and Debentures) Rules, 2014 under the Companies Act, 2013.
Under Section 68, 69 and 70 of the Companies Act, 2013 a company may Buy-back its own securities and Rule 17 of Companies (Share Capital & Debenture) Rules, 2014 contains the regulations regarding buy-back of securities for unlisted companies.
Below Provision of Restriction is for Buyback of 25% by Shareholders Approval Route
Maximum amount permissible for the buy-back: – First Calculate 25% of paid-up equity capital and free reserves, it will be the Amount that will be available for Buyback.
Maximum Paid up Equity Share Capital for Buy-back: – 25% of its total paid up equity share capital.
Board Route: 10% or less of the total paid-up equity capital and free reserves of the company.
Shareholders Route: 25% or less of the total paid-up equity capital and free reserves of the company
Important Note: – Free Reserve includes Securities Premium as per the provisions of the Companies Act, 2013, therefore Securities Premium will be added under Free Reserve for the Calculation of Buyback.
Go for Buyback throw Board Route for 10% or less. Buyback for more than 10% but less than 25% then go for Shareholders Route.
Section 68 (1) of the Act provides that buy-back of shares can be financed only out of,—
> its free reserves;
> the securities premium account; or
> the proceeds of the issue of any shares or other specified securities:
(Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities)
> Buyback in Case of For Private Co.-No any Requirement of Demat Facility and ISIN Number.
> Buyback in Case of Public Limited Company: – It is mandatory to give Demat Facility to Shareholders and should have ISIN Number as well as all the Shares of Directors, promoters and KMP should be in Demat Form.
Section 68 (2) of the Companies Act provides that a company can buy-back its shares or other specified securities only when-
> HOW MUCH BUYBACK IS POSSIBLE :-
♦ The Board has the Power up to 10% – The buy-back is 10% or less of the total paid-up equity capital and free reserves of the company and such buy-back has been authorized by the Board by means of a resolution passed at Board meeting;
♦ The Shareholders has the Power More than 10 but Less than 25% – The overall limit of buy-back is 25% or less of the total paid-up equity capital and free reserves of the company with Approval of Shareholders by General Meeting by Special Resolution.
♦ Number of shares to be bought back in respect of Equity shares should not exceed 25% of its total paid up equity share capital.
> AUTHORITY IN ARTICLE OF ASSOCIATION: – The buy-back is authorized by its articles, if not have the power in Article then first alters the Article of Association.
> DEBT-EQUITY RATIO: – The buy-back debt-equity ratio should be within the permissible ration of 2:1
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.
> BUYBACK COMPLETION TIMELINE: – Every buy-back is required to be completed within 12 months from the date of passing the Special Resolution or the Board Resolution, as the case may be.
> CRR: Where a Company purchases its own shares out of free reserves or securities premium account then a sum equal to nominal value of the shares purchased has to be transferred to the CRR A/c.
> RESTRICTIONS ON BUY-BACK: Section 70 (1) of the Companies Act restricts modes of Buy-back. The companies are restricted to Buy-back its shares-
♦ Through any subsidiary company including its own subsidiary companies.
♦ Through any investment company or group of investment companies; or
♦ if a default, is made by the company, in the repayment of deposits
> RESTRICTION ON WITHDRAWL OF BUYBACK: – The Company shall not withdraw the offer once it has announced the offer to the shareholders.
> RESTRICTION ON USE ANY MEANS OF FUND FOR PAYMENT OF BUYBACK:– The company shall not utilize any money borrowed from banks or financial institutions for the purpose of buying back its shares.
> OTHER TERMS:
♦ No offer of buy-back under this sub-section 68 (2) shall be made within a period of 1 year reckoned from the date of the closure of the preceding offer of buy-back.
♦ A company buying back its securities is prohibited from making a further issue of securities within a period of 6 months.
AUDITORS CERTIFICATE AND BALANCE SHEET RELATED PROVISION:
> A REPORT ADDRESSED TO THE BOARD OF DIRECTORS BY THE COMPANY’S AUDITORS STATING THAT:
i. They have inquired into the company’s state of affairs;
ii. The amount of the permissible capital payment for the securities in question is in their view properly determined;
iii. That 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 offer document; and
iv. The Board of directors have formed the opinion as specified in point 14 on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date.
> AUDITED AND UN-AUDITED ACCOUNTS REQUIREMENT
The audited account on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document.
Provided that where the audited accounts are more than six months old, the calculations with reference to buy back shall be on the basis of un-audited accounts not older than six months from the date of offer document which are subjected to limited review by the auditors of the company.”
MCA E-FORMS RELATED TO BUYBACK
√ E-Form MGT-14
√ E-Form SH-8
√ E-Form SH-9
√ E-Form SH-11
OTHER DOCS REQUIRED FOR BUYBACK:
√ Certified Copy of BR
√ Buyback Notice of EGM with Explanatory
√ Certified Copy of SR with Explanatory Statement
√ Affidavit as Declaration of Solvency
√ Audited Financial Details of Last 3 years
√ Auditors Report as Certificate of Declaration
√ Details of Promoters of the Company
√ SH 10-Description of shares or other specified securities bought back
√ Particulars relating to holders of securities buyback
√ SH 15 – Compliance Certificate
√ Holders of securities before and after buy-back
√ Declaration by Directors on Completion of Buyback
√ Statement of Assets and Liabilities (is not more than six months old from the date of offer document)
PROCESS OF BUYBACK:
♦ Board Meeting.
♦ EGM and File MGT-14.
♦ File with the Registrar of Companies a letter of offer in Form No. SH-8.
♦ Declaration of Solvency is required to be filed with the Registrar in SH-9 and verified by an affidavit to guarantee its solvency for at least a year after the completion of buy-back.
♦ Letter of offer needs to be dispatched to the Shareholders or security holders within 20 days from its filing with Registrar of Companies.
♦ The offer for buy-back should remain open for a period for a maximum period of 30 days from the date of dispatch of the letter of offer. (Provided that where all members of a company agree, the offer for buy-back may remain open for a period less than fifteen days.)
♦ The company should complete the verifications of the offers received within 15 days from the date of closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within 21 days from the date of closure of the offer.
♦ The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, the total amount payable as consideration for the shares offered for buy back.
♦ The company should make payment within 7 days.
♦ A company after the completion of buy-back is required to extinguish and physically destroy its securities within 7 days of the last day on which the buyback process is completed.
♦ The company, shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10, it will be attached in Form SH-11.
♦ On completion of the buy-back process, the company shall within a period of 30 days file with the Registrar a return in the Form No. SH-11 with a certificate in Form No. SH- 15
Time Line of Buy-Back:
|No. of days/ time taken||Activity|
|X Days||Holding of BOARD MEETING for
1. Considering buy back proposal,
2. Approving buy back price
3. Notice of EOGM
4. Approving Letter of Offer
5. Approval of Statement of A/c and Auditors Report
|Signing Date of Statement of A/c and Auditors Report|
|X Days||Issue of Notice With Explanatory Statement (as mentioned) to all the members|
|X+25||Holding EGM and passing Special Resolution for Buyback|
1. DECLARATION OF SOLVENCY (Verified by an AFFIDAVIT) in E- FORM SH-9 and
2. Filing of draft Letter of Offer with the ROC along with the declaration of solvency in E-FORM SH-8
|X+27||Filing of Form MGT-14 with the ROC (for Registering Special Resolution Within 30 days of EGM)|
|X+27||Dispatch of letter of offer to all members after filing the same with ROC but not later than 20 days from its filing with the ROC.
(Opening after one day of date of Letter)
*Letter date will be the date of BM and to be signed by 2 Directors
|X+30||The offer for buy-back shall remain open for a period of not less than 15 days and not exceeding 30 days from the date of dispatch of the letter of offer.
*it can be less than 15 days provided that where all the members agree.
|X+32||Verification of offers to be completed within 15 days from the date of the closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within 21days from the date of closure of the offer.
*Acceptance/rejection of the offer
|X+33||Open a special bank account and deposit therein such sum, as would make up the entire sum due and payable as consideration for the buy-back
* Immediately on closure of offer
|X+39||Making payment in cash or bank draft/pay order to those shareholders whose offer has been accepted or return the share certificates to the shareholders forthwith.
* Dispatch of Consideration Within 7 days from completion of verification
|X+39||The company shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10
* Immediately after completion of acceptance
|X+39||Extinguish and physically destroy the shares bought back in the presence of the Company Secretary in whole time practice
* Within 7 days from completion of acceptance
|X+40||File requisite form SH-11 (Form SH-15 as attachment) with the ROC
* Within 30 days from completion of acceptance
If the Company will give Shorter Notice for EGM and also will able to take approval from Shareholders for Opening of Letter of Offer for less than 15 days then this buyback Period can be reduced to 15 to 20 days.
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