1. A company may purchase its own shares or other “specified securities” its free reserves;
(a) the securities premium account;
(b) or the proceeds of the issue of any shares or other specified securities.
2. Only fully paid up shares can be brought back in a financial
3. Company should be authorized by Articles of Association to Buy Back its own
4. 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)
5. Post Buy Back Debt Equity ratio should not exceed 2:1
6. Pass Board or Special Resolution as
Board Resolution If Buyback is 10% of the total paid-up Equity capital and free Reserves.
Special Resolution If Buyback is up to 25% of the aggregate of paid-up capital and free Reserves.
7. Time Gap between two buy back should be one
8. Cooling Period: from the date of completion of Buy-back Company cannot issue same kind shares including right issue of shares within a period of 6 months except Bonus issue or discharge of subsisting obligations.
9. Under Section 70, no company shall directly or indirectly purchase its own shares or other specified securities—
(i) through any subsidiary company including its own subsidiary companies; through any investment company or group of investment companies; or
(ii) if any default, is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company: However, the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.
(iii) No company shall, directly or indirectly, purchase its own shares or other specified securities in case such company has not complied with the provisions of sections 92 Annual Return, 123 (Declaration of Dividend), 127 (punishment for failure to distribute dividend) and section 129 (Financial Statement).
10. The buy-back may be—
From the existing shareholders or security holders on a proportionate basis;
By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
PROCESS OF BUYBACK OF SHARES
1. If Special Resolution is to be passed for alteration of Article of association and approval for buyback , Notice for the same has to be given to Shareholders at least 21 days before the date on which passing Special
2. Along with Notice, Explanatory Statement needs to be provided explaining the purpose of Buyback (Refer Annexure 1 for details to be provided in Explanatory Statement)
3. Form MGT-14 should be filed with the Registrar along with fee within 30 days of passing the Special
4. Company buys back security at Fair Market Value (FMV) (CA Certificate require).
5. After the Special Resolution but before the buy-back of shares, company should file with the Registrar of Companies a letter of offer in Form SH-8, along with the fee & that needs to be signed by 2 directors, at least one should be Managing director, if any.
Attachment of Form SH-8
- Details of promoters
- Declaration by auditors
- Copy of Board Resolution
- Copy of Notice and explanatory statement and Members resolutions
- Audited financial statements for last 3
- Offer letter
- *Valuation certificate
*{(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
[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.”]}
6. File with the Registrar and the Securities and Exchange Board (in case of listed companies), a declaration of solvency in Form SH-9, along with the letter of offer and fees which that needs to be signed by 2 directors, at least one should be Managing In such form as may be prescribed and verified by an affidavit as specified in said form.
Attachment of Form SH-8
- Copy of Board Resolution
- Statement of assets and liabilities
- Affidavit _Declaration of solvency
- Certificate from auditor
- Copy of Notice and explanatory statement and Members resolutions
7. Letter of offer needs to be dispatched to the Shareholders or security holders within 20 days from its filing with Registrar of
8. 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 (Minimum period of 15 days is also prescribed) Provided that where all members of a company agree, the offer for buy-back may remain open for a period less than fifteen days
9. If buy back by the company is over subscribed then the total number of the shares to be bought back, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought
10. 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
11. 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
12. The company should make payment within 7 days to those shareholders or security holders whose securities have been
13. Where the company buy backs its own shares and other securities, it shall extinguish and physically destroy the shares and securities so bought back within 7 days of the last day of completion of buy
14. Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the
15. The company, shall maintain a register of shares or other securities which have been bought-back in Form SH.10. This register shall be maintained at registered office of the company, at the custody of the secretary of the company or any other person authorized by the board in this behalf & entries in this register shall also be made by the secretary of the company or any other person authorized by the board in this behalf.
16. A company should after the completion of the buy-back file with the Registrar and the Securities and Exchange Board (in case of listed companies) a return Form SH.11 along with the ‘fee’ containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed. There shall be annexed to the return filed with the Registrar in Form No. SH-11, a certificate in Form No. SH- 15 signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and rules.
Attachment of Form SH-11
1. Description of shares or other specified securities bought back
2. Particulars relating to holders of securities before buy-back
3. Copy of Board Resolution
4. Copy of Notice and explanatory statement and Members resolutions
5. Balance sheet of the company
6. Form SH-15_ Certificate of compliance of buy-back
7. Resolutions for accepting of offer
Following documents require from Chartered Accountants:
1. Valuation Certificate
2. Declaration regarding state affairs of the Company and declaration under section 68 (2) (c )
3. Statement of assets and liabilities as on date
4. Unaudited Financial statements as on date
Author Bio
