The document discusses buyback of shares by a company. It defines buyback as a company repurchasing its own shares. The objectives of buyback include increasing promoter holdings, improving earnings per share, and paying surplus cash. Companies can buyback shares through tender offers to shareholders, purchasing on the open market, or through book building. Strict conditions apply, including board and shareholder approvals, maintaining debt-equity ratios, and extinguishing repurchased shares within 7 days. Regulations cover pricing, timelines, disclosure requirements, and prohibitions.

1. BUY BACK
OF
SHARES

2. Meaning of Buy Back of Shares
There is no definition given by the Company Act, 1956 about
the buy back of shares. But in simple words, we can say that
buy back of shares means repurchase of its own shares by the
company. In other words, buy back of shares means a
company buying its own shares
Buyback is reverse of issue of shares by a company where it
offers to take back its shares owned by the investors at a
specified price; this offer can be binding or optional to the
investors
It was opted by company if there was an addition funds with
company and there is no profitable application where these
funds can be invested.

3. Objective of Buy Back of Shares
Shares may be bought back by the company on
account of one or more of the following reasons
•To increase promoters holding.
•Increase earning per share.
•To maintain a target capital structure.
•Support share value.
•To prevent takeover.
•To pay surplus cash not required by business.

4. SECTION
These were
inserted by the
Companies
(Amendment)
Act,1999.
The provisions regulating
buy back of shares are
contained
in
Section
77A, 77AA and 77B of the
Companies Act, 1956.

5. SEBI
The Securities and Exchange
Board of India (SEBI) framed the
SEBI (Buy Back of Securities)
Regulations, 1999 and the
Department of Company Affairs
framed the Private Limited
Company and Unlisted Public
company (Buy Back of Securities)
rules, 1999.

6. Resources Of Buy Back
Free reserves
The securities premium account
The proceeds of any shares or other specified securities.

7. Conditions Of Buy Back
The articles should permit buyback.
A special resolution should be passed in general meeting of
the company authorizing buyback.
The buyback should be equal to or less than 25% of the total
paid up capital and free reserves of the company.

8. All the shares for buy back should be fully paid up.
Buy Back should be in Accordance with the SEBI
Regulations
 The ratio of debt owned by the company should not be
more than twice the capital and its free reserves, in that
particular financial year.

9. Before making purchases under buy back , a declaration of
solvency in the prescribed form has to be filed with the ROC.
Affidavit has to be submitted.
Declaration should be signed by atleast two directors of the
company.

10. Prohibition from further issue of securities within a period of
two years.
The securities should be extinguished and physically
destroyed within seven days of the last date of completion of
buy back.
Maintaining a register of securities – the consideration paid
, the date of extinguishing and physically destroying of
securities etc.
Any default to comply with the requirements /rules is
punishable

11. Prohibition of Buy Back
Through any/own subsidiary company
Through any investment company or a group of
investment companies.
If the company has defaulted in respect of repayment.

12. Buyback under Companies Act : Snapshot
Conditions
Enabling
Provisions
Buyback Limits
Shareholders’ Buyback
Board Buyback
Must be authorized by
Resolution of the
Board of Directors.
the Article of
Association.
A Special Resolution of
the shareholders must
be passed. For listed
companies it must be by
way of a Postal Ballot.
25% of the total Paid-up
10% of the total PaidCapital + Free
up Equity Capital +
Reserves; and
Free Reserves.
(This limit is only for
amount utilized in the
buy back).
Not more than 25% of the total Paid-up Equity in
that financial year.
(This limit is for No. of shares to be bought back in a
financial year).

13. Buyback under Companies Act : Snapshot
Manner of
Buyback
Debt-Equity
Ratio
Types of
shares which
can be bought
back
From Open Market.
From Existing Shareholders on
Proportionate basis.
From Odd Lots (i.e., where the lots of
securities of a public company, whose shares
are listed on a recognized stock exchange, is
smaller than such marketable lot, as may be
specified by the stock exchange).
By Purchasing ESOP/ Sweat Equity shares.
Not More than 2:1 (Debt/ (Equity Capital +
Preference Capital + Reserves) after the
buyback.
Fully Paid-up.

14. Buyback under Companies Act : Snapshot
Explanatory
Statement to
Notice calling the
General Meeting
Pricing
Date of
Completion
Further Buyback
Must contain
the prescribed
details.
Not Applicable
Free Pricing – No fixed basis
Within 12 months of the Resolution.
Not within 365 days
from the date of
buyback

15. Buyback under Companies Act : Snapshot
Extinguishments
of shares bought
back
Within 7 days of the completion of Buyback.
Further Issue of
Shares
A Further issue of the same kind of securities or
u/s 81(1)(a) cannot be made within 6 months of the
buy-back, except by way of Bonus, Sweat Equity,
ESOP, conversion of financial instruments, etc.
Transfer to
Capital
Redemption
Reserve
If the Buyback is made out of Free Reserves, then
amount equal to the Nominal Value of shares
bought back must be transferred to the Capital
Redemption Reserve account.

16. SEBI Buy-Back of Securities by Listed
Companies Regulation, 1998
A COMPANY CAN BUY BACK ITS OWN
SECURITIES BY ONE OF THE FOLLOWING
METHODS
 FROM THE EXISTING SHAREHOLDERS ON
A PROPORTIONATE BASIS
TENDER OFFER.
 FROM OPEN MARKET
 FROM ODD LOT HOLDER
THROUGH

17. To buy back securities, a company should be
authorized by
 Special Resolution under Section 77-A(2) of the
companies Act
 A resolution passed by its Board of Directors under
Section 77-A(2)(b)(i).

18.  Release of the Public Announcement (Regulation 8)
 Filling of Offer Document.
 Dispatch of letter of offer to security holders.

19. Contents of Explanatory Statement
1.
2.
3.
4.
5.
The date of the meeting at which the proposal for buyback was approved by the Board of Directors of the
company.
The necessity of Buy-back.
The maximum amount required under the Buyback and
the sources of funds from which the buy-back would be
financed.
The basis of arriving at the buy-back price.
The number of securities that the company proposes to
buy-back.

20. 7. a) The aggregate security holding of the promoter and of
the director of the promoter.
b) Aggregate number of equity purchased or sold by
people.
8. A confirmation that there are no defaults in repayment of
deposits, redemption of debentures or pref shares or
repayment of term loans to any financial institution(s) or
bank(s).
9.A report addressed to the board of Directors by the
company's auditor.

21. Instances where Buyback should not be
effected

A company shall not buy back its specified securities
from any person through negotiated deals, whether on or
of the stock exchange or through spot transactions or
through any private arrangement. (Clause 4.2)

Any person or an insider shall not deal in securities of
the company on the basis of unpublished information
relating to buy-back of specified securities of the
company. (Clause 4.3)

22. Methods of Buy Back
 Purchasing form existing security holders on a
proportionate basis (Tender Offer Method)
 Purchasing from open market (Through Stock Market)
 Purchasing from odd lot holders
 To employees under Scheme of stock Option or Sweat
Equity

23. Buy Back Through Tender Offer
 Offer Procedure:
Time Period for offer: 10 Working Days
Letter of offer to security holders as on Record Date
Verification of offer: within 7 working days
 Escrow Account
If the consideration payable dos not exceed Rs.100crores-25% of the
consideration payable;
If the consideration payable exceeds Rs.100 crores-25% up to Rs.100 corers
and 10% thereafter.
 Payment to security holders
Company should make payment to security holders within seven days.

24. Document Required
 Public announcement in English National Daily and Hindi
National Daily
 Draft letter of offer needs to be submitted to Board within 5
Working days of the pubic announcement
 Declaration of solvency along with letter draft letter
Extinguishment of Certificate
 Company shall extinguish and physically destroy the security
certificate within the seven days from the date of acceptance
 The particulars of the security certificates extinguished and
destroy shall be furnished to the stock exchange where the
specified securities of the company are listed within seven
days of such act.
 Company should maintain a record of security certificate
which have been cancelled and destroyed.

25. Buy-Back
from the
open market
Through
Stock
Exchange
Bookbuilding
Process

26. Buy Back Through Stock Exchange
 Special Resolution in the Board meeting
 It should not be made from the promoters of the company
 Appoint Merchant Banker and make public announcement
 Public announcement should be made at least seven days
before the buy back
 A copy of announcement should be filled with Board within
2 days along with specified fees

27. Contd…...
 Public announcement should also contain
disclosures regarding details of brokers and stock
exchange
 It should be done with electronic trading facility
 Information regarding securities purchased and
published same in a national daily
 Identity of company shall appear on the electronic
screen

28. Extinguishment of Certificate
(1) Extinguishment of certificates shall be
applicable mutatis mutandis.
(2) The company shall complete
the verification of acceptances
within fifteen days of the pay-out.

29. Buy-Back Through Book Building
 Special resolution in board meeting stating the maximum
price for the buy-back
 Company shall appoint a merchant banker and make a
public announcement
 And it should be made at least 7 days prior to buy back
procedure
 Specific amount shall deposit in escrow account
 A copy of announcement should filed with board along with
the fees

30. Contd…
 Book building process shall be made though an electronically
linked transparent facility
 The number of bidding center should not be less than thirty
 The offer for buy back shall remain open for notless than 15 days
and not more than 30 days
 Merchant banker and company will decide the
price based on acceptances received
 The final buy back price would be the highest price accepted
shall be paid.

31. Extinguishment of Certificate
 Extinguishment of certificates shall be
applicable mutatis mutandis.

32. Source :-Business Standard
 Data dated :- 9th Nov 2011


33. SHARE BUYBACK: POSITIE
ASPECTS
1. It
could enable a
company to achieve its
desired capital structure
more quickly or facilitate
a major restructuring.
2. It could avert a hostile
takeover bid by reducing
the number of shares in
circulation

34. SHARE BUYBACK: POSITIE
ASPECTS
3. Market generally interprets
buy-back as a positive aspect.
4. Shareholders have a choice of
deciding whether or not to
receive the payout by selling or
holding their shares, unlike a
dividend payout.
5. Returning excess cash by way of
a share buy-back gives a
company greater flexibility
with regard to it’s dividend
policy.

35. SHARE BUYBACK:
NEGATIVE
ASPECTS
POSITIVE
Re-purchase of it’s own shares may
conversely have a negative signaling
effect.
2. Management may not seek to utilize
any existing excess cash effectively
3. Possible
mismanagements may
arise if-Too high a price is paid for the repurchased shares or if
-Cash resources are eroded to the
level that could give rise to a risk of
insolvency.
4. A return of funds by way of a share
buy-back is less certain than an
annual dividend stream.
1.

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