?? What is a Share Buyback?
A buyback is when a company repurchases its own shares, reducing outstanding capital to enhance shareholder value and optimize financial structure. It helps boost EPS, consolidate ownership, and utilize surplus funds effectively.
?? Legal Framework
- Companies Act, 2013 (Sections 68–70)
- Companies (Share Capital & Debentures) Rules, 2014 (Rule 17)
?? Modes of Buyback:
- Proportionate Basis: From existing shareholders based on ownership.
- Tender Offer: Shareholders tender shares at a fixed price.
- Open Market: Buyback through stock exchanges.
- ESOP Buyback: Repurchase of shares issued through employee stock options.
?? Sources of Funds:
- Free Reserves
- Securities Premium Account
- Proceeds from Fresh Issue (not for the same class of shares)
?? Key Conditions & Restrictions:
- The Articles of Association (AOA) must permit buyback.
- Buyback limited to 25% of paid-up capital and free reserves.
- Debt-to-equity ratio post-buyback must not exceed 2:1.
- No re-issuance of the same class of shares for 6 months.
- Only fully paid up shares can be bought back.
- The buy-back should be completed within a period of one year from the date of passing of Special Resolution or Board Resolution, as the case may be.
?? Step-by-Step Procedure for Buyback:
- Board Approval: The Board of Directors passes a resolution (if buyback is up to 10% of paid-up capital and reserves).
- Shareholder Approval: If the buyback exceeds 10%, a Special Resolution (75% majority) is required at a general meeting.
- Filing with ROC: Within 30 days of passing the Board Resolution or Special Resolution in the General Meeting, as the case may be, file Form MGT-14. Prior to the buyback, file a declaration of solvency in Form SH.9 along with the letter of offer in Form SH-8. This declaration should be signed by a minimum of two directors, with one of them being the managing director, if applicable.
- Dispatch of Offer Letter: Sent to shareholders within 20 days of filing SH-8.
- Offer period: 15-30 days. However, in cases where all members of the company are in agreement, the offer period may be less than 15 days.
- Open a separate bank account: A separate bank account with a scheduled commercial bank must be opened, This account will hold the necessary funds to cover the entire sum due and payable as consideration for the shares tendered for buyback.
- Verification of Offer: The company is required to complete the verification of offers received within 15 days from the closure of the offer. If no communication of rejection is conveyed within 21 days from the closure of offer , then its deemed acceptance.
- Extinguishment of shares: The bought-back shares must be physically destroyed or dematerialized within 7 days of payment.
- Filing of Return of Buyback: After the completion of the buyback, the company should file a return in Form No. SH.11 within 30 days of the completion date.
- Maintain
?? Final Thoughts:
A well-planned buyback can be a strategic tool to manage capital, enhance valuation, and reward shareholders. However, meticulous compliance with procedural requirements is essential to avoid penalties and ensure smooth execution.
Whether you're a CS student, professional, or corporate enthusiast, this newsletter will break down complex provisions, amendments, and compliance frameworks into easy-to-understand insights.
Stay ahead with expert tips, case studies, and real-world applications to navigate the corporate world with confidence.
?? Simplified explanations of secretarial procedures
?? Latest corporate law amendments & compliance updates
?? Practical insights for CS professionals & students
?? Subscribe now and make corporate compliance effortless!
#CSPlaybook #CompanySecretary #CorporateLaw #Governance #Compliance
