Buyback of shares


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Buy-back of shares / securities of the company, through different modes and other related compliance are in detail.

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Buyback of shares

  1. 1. BUY BACK OF SHARES Presented By, Bibhu Kalyan Rauta Mail id-
  2. 2. BUY BACK OF SHARES Meaning: Buyback of shares is processes where a company seeks to repurchase its own securities from its existing shareholders. Buy back of equity shares is an important mode of capital restructuring.
  3. 3. PROVISIONS OF BUY BACK Under Section 68 of Company’s Act, 2013, read with Section 77A of Companies Act, 1956, any company limited by shares or company limited by guarantee and having a share capital can buy its own securities, whether it is a private company, public company or unlisted Company. BUY BACK OF SHARES
  4. 4. OBJECTIVES OF BUY BACK Improves EPS, Return on Capital, Return On Networth Enhance longterm Shareholder value Additional exit route To prevent or inhibit unwelcome takeover bids To achieve optimum capital structure
  5. 5. BOARD RESOLUTION  Not exceeding 10% of the total paid-up equity capital and free reserves of the Company.  Resolution should be passed at Meeting of Board of Directors as per Section 292(1)(aa) of Companies Act 1956. SHARE HOLDERS’RESOLUTION  Special Resolution -Listed Companies by Postal Ballot -Unlisted Companies by General Meeting  Not exceeding 25% of the total paid-up capital and free reserves of the Company
  6. 6. Buy back of equity shares in any financial year should not exceed 25% of the total paid-up equity capital of the company [ Proviso to Section 77A(2)(c)]. For example: The capital structure of a company consists of: 10,00,000 equity shares of Rs.10 each fully paid up 10,00,000 equity shares of Rs.10 each on which Rs.5 is paid up Free Reserves Rs. 7,50,00,000 The total paid up equity share capital of the company is Rs.1,50,00,000 [1,00,00,000 + 50,00,000] Board can buy back upto 10% of total paid up equity share capital and free reserves and that is Rs.9,00,000 [ 10%(1,50,00,000+7,50,00,000)] Shareholders can approve buy back upto 25% of paid up capital and free reserves that is Rs.2,25,00,000 [ 25%(1,50,00,000 + 7,50,00,000)] Buy back should not exceed 25% of paid up equity capital that is Rs.37,50,000 [ 25%( 1,00,00,000 + 50,00,000)]
  7. 7. CONDITIONS TO BE FULFILLED AND OBLIGATIONS FOR BUY BACK OF SECURITIES Fully Paid up securities. Debt equity ratio of the company should not exceed 2:1 post buy back. Transfer to Capital Redemption Reserve where buyback is made out of free reserves. Further issue of same kind of securities should not be made within 6months from date of completion of buy back. Buy back should not be made if it results in reduce in the non-promoter holding below the public shareholding. Promoters or PAC should not deal in the securities of company while buy back is open.  Disputed securities kept in abeyance.
  8. 8. 1. Free Reserves 2. Securities Premium Account 3. Proceeds of any shares or other specified securities. However, BUY-BACK of any kind of shares or same other specified securities CANNOT be made out of an earlier issue of the same kind of shares or same kind of other specified securities - Sec.77A(1). A company cannot use proceeds of issue of equity shares to buy back equity shares. But company can use proceed of issue of debenture/ Pref. Sh. To buy its equity shares.
  9. 9. BUY BACK PROCEDURE FOR LISTED SECURITIES As per provisions of Section 77A, 77AA, 77B of the Companies Act, 1956 and the SEBI( Buy-back of Securities) Regulations, 1998. Amendment of Articles by passing special resolution and file Form-23 with Registrar of Companies. Special Resolution shall have explanatory statement stating the necessity, class of securities, amount to be invested and other disclosures of buyback , method of buyback, basis of arriving at price, sources of funds, etc and Approval of shareholders to be obtained. Disclosure of resolutions and other necessary documents should be submitted to SEBI and the Stock Exchanges as and when it is required. Company should nominate a Compliance Officer for ensuring all the necessary compliances relating to Buy-back. Merchant Banker should be appointed who is registered with SEBI. Investor Service Centre should exist. Time limit for completion of Buy-back should be within 12 months from date of passing of the special resolution or the resolution of the Board of Directors.
  10. 10. METHODS OF BUY-BACK Book- Building Process Stock Exchange
  11. 11. Buy-back from Open Market Book Building Process: Special Resolution Appoint Merchant Banker Public Announcement Escrow Account Electronically Linked Transparent facility Bidding Centers Period of buy back- Not less than 15 days and not exceeding 30 days Merchant Banker to determine price Extinguishment of securities Register of bought back securities Stock Exchange: Special Resolution Securities should not be from Promoters and persons in control of the company Merchant Banker should be appointed and Public Announcement should be made Stock exchange having Nationwide Trading Terminal Company and Merchant Banker should give information to Stock Exchange on daily basis regarding securities bought-back and same should be published in a national daily Identity of the company as a purchaser would appear on electronic screen when the order is placed. Extinguishment of securities Register of bought back securities
  12. 12. IMPORTANT ASPECTS OF BUY BACK FOR LISTED COMPANIES Declaration of solvency Filing of Return of Bought back Securities with Registrar Locked-in shares not to be bought-back Publication of post-buy back advertisement Communication with Authorities ROC SEBI Stock Exchange
  13. 13. Income tax Aspects Stamp Duty on Buy-back
  14. 14. BUY BACK PROCEDURE FOR PRIVATE LIMITED & UNLISTED PUBLIC LIMITED COMPANIES The procedure for buy-back of securities by private limited and unlisted public limited companies is laid down in Sections 77A, 77AA and 77B of the Companies Act, 1956 and the Private Limited Company and Unlisted Public Limited Company ( Buy-back of Securities) Rules, 1999. Procedure for Buy-back: Approval of Board of Directors by passing necessary resolutions. Buy-back can be made by purchasing securities from existing shareholders on a proportionate basis or by purchasing the securities issued to employees. Special Resolution should be passed in General Meeting of the company. Special Resolution should be along with explanatory statement stating necessity of buy back, class of security, method of buy back, and all other disclosures relating to buy back. File Letter of Offer , Declaration of Solvency in Form 4A with Registrar of Companies. Letter of offer to be despatched to shareholders not later than 21 days. Payment to shareholders. General Obligations of company. Return to be filed with ROC Extinguishment of Certificates. Register of Shares.
  15. 15. RESTRICTIONS ON BUY-BACK OF SECURITIES – Section 77B Company should not buy-back its securities if -Default subsists in repayment of deposits, interest payable thereon, redemption of debentures or preference shares, etc. -Defaulted in relation to preparation and filing of its Annual Return. -Default in relation to payment of Dividend to any equity or preference shareholders. -Default in preparation of the Annual Accounts. Buy-back should not be made by a company -Through any subsidiary company including its own subsidiary -Through any investment company or group of investment companies
  16. 16. CONCLUSION Buy Back of shares has its pros and cons On one hand it prevents takeovers and mergers thus preventing monopolization and aiding the survival of consumer sovereignty. On the other hand Buy back can help in manipulating the records in flatting share prices PE Ratio, EPS, thus misleading shareholders. Thus, knowledge of the impacts of Buy-back becomes vital and every shareholder must reconsider all his views before purchasing the shares of companies involved in the process of Buy-back.