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.
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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
