Buyback is basically a corporate financial strategy which leads to corporate restructuring and increases Earning per share. Section 68 of Companies Act, 2013 entitled a company to purchase its own shares or other securities. It is also known as share repurchase.

Table of Content

Sources of Buyback of Shares:

  •  Its Free reserves,
  •  Securities premium account,
  •  Proceeds of the issue of any shares or other specified securities

Arrangement of Buyback of Shares:

  • From the existing shareholders or security holders on a proportionate basis
  • From the open market
  • By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity

Conditions for Buyback of Shares: 

  • AOA of the Company should permit Buyback of Shares or other specified securities
  • All the shares or other specified securities bought back should be fully paid up
  • Special resolution need to be passed at a general meeting of the company for the proposal of Buyback and it should contain all the details related to Buyback
  • Every Buyback shall be completed within a period of one year from the date of passing the Special resolution or Board resolution as the case may be
  • The Buyback shall not exceed 25% of aggregate of paid up share capital and free reserves of the company (In case of equity shares, it shall be 25% of paid up equity share capital)

Procedure to be followed for Buyback of Shares:

  • At least 21 days notice has to be given to all the shareholders for passing of the Special resolution
  • Within 30 days of passing the special resolution, Form MGT-14 should be filed with the Registrar of companies.
  • After passing of the special resolution but before the Buyback of shares Form SH-8 needs to be filed with the ROC that needs to be signed by two directors of the company (at least one should be managing director, if any)
  • Declaration of solvency in Form SH-9 should be filed with the ROC and SEBI (In case of listed companies)
  • Letter of offer shall be circulated to all the shareholders and other security holders not later than 20 days from filing with the ROC
  • Offer period shall remain for minimum 15 days but for maximum 30 days from the date of dispatch of letter of offer

Post Buyback of Shares obligations:

  • Form SH-11 shall be filed with the ROC and SEBI (In case of listed companies) within 30 days of completion of Buyback.
  • Within 7 days of the last date of completion of Buyback, all the shares and other specified securities shall be destroyed physically 
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