BUY BACK of shares means that company which has issued shares repurchase the same from either open market or by providing an offer to existing shareholders to buy back at fixed price. Buy back is normally done when company thinks that shares are undervalued in the market and therefore, by buy back, company absorbs the repurchased stocks and no. of stocks in market get reduced. It is also one of the method of giving funds to shareholders instead of giving dividends.
• As per Section 68 of the Companies Act, 2013, a company may purchase its own shares or other specified securities (hereinafter referred to as buy-back) out of—
(a) its free reserves;
(b) the securities premium account; or
(c) 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.
• The buy back must be authorised by the Articles of Association of the Company.
• The buy back may be:
(a) from the existing shareholders or security holders on a proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
• Buy back must be authorised via Special Resolution in a General Meeting. However, a Company need not pass a SR where
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 authorised by the Board by means of a resolution passed at its meeting.
• The maximum limit for buy back is upto 25% or less of the aggregate of paid-up capital and free reserves of the company. However, in respect of the buy-back of equity shares in any financial year, the reference to 25% per cent in this clause shall be construed with respect to its total paid-up equity capital in that financial year.
• The process for buying back shares shall be accordance with Rule 17 of The Companies (Share Capital and Debentures) Rules, 2014.
• After buyback, debt equity ratio should not exceed 2:1
• Within 6 months from date of completion of buy back, company shall not issue fresh shares (Except Bonus shares/conversion of warrants/stock option/sweat equity/conversion of preference shares/conversion of debentures) u/s 62(1).
STEPS TO BE TAKEN FOR BUY BACK:
Board Meeting is to be convened notice of which must be given at least 7 days before the meeting.
In the board meeting, pass resolution for buy back, fix date for EGM, approve notice for calling EGM with explanatory statements.
Send notice of EGM giving at least 21 days clear notice before EGM and pass a Special Resolution.
File MGT 14 within 30 Days of passing of Special Resolution.
File the same in SH – 8 to ROC. Within 20 days from the date of filing SH-8 with ROC, letter of offer should be dispatched to shareholders. Offer shall remain open for Min-15 days to max- 30 days from date of dispatch.
Declaration of solvency is to be filed to ROC in SH – 9.
Within 15 days from the date of closure of the offer, the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within twenty-one days from the date of closure of the offer
The company shall confirm in its offer the opening of a separate bank account adequately funded for this purpose and to pay the consideration only by way of cash
The company, shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
The company shall not withdraw the offer once it has announced the offer to the shareholders;
A return in Form SH – 11 shall be filed by two directors of the Company annexing a certificate in Form No. SH.15 certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the rules made thereunder.
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