The document discusses buy-back of shares by a company. It introduces buy-back and outlines the key reasons for companies to buy-back shares such as signaling effect and increasing earnings per share. It also discusses the provisions governing buy-back under the Companies Act, 2013 including conditions, process, restrictions and tax treatment. Finally, it describes various methods of buy-back for both listed and unlisted companies.

1. BUY-BACK OF
SHARES
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2. Introduction
 It was introduced by Companies Amendment Act,1999
 Buy-back refers to purchase by a company of its own shares
 It takes place at a specified price generally determined on the basis of
average price of shares in past few months
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3. Reasons for buy-back of shares
 Signaling Effect
 Realign the capital structure
 Avert hostile takeovers
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4.  Agency Conflict
 Increase the earnings per share
 Improve returns to the stakeholders
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5. Disadvantages of buy-back of shares
 It puts companies at a risk
 Buy-back of shares sends out negative signals to the investors
 If a company pays too much for its own shares, it might become a
disadvantage
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6. Provisions governing Buy-back of
shares under Companies Act,2013
Power of company to purchase its own securities
 Purchases can be made out of:
• Free reserves
• Securities premium account
• Proceeds of any shares or other specified securities
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7.  Preliminary conditions for buy-back:
• Must be authorized by its articles
• A special resolution has been passed at a general meeting of the company
authorizing the buy-back
• The buy-back is twenty-five per cent or less of the aggregate of paid-up
capital and free reserves of the company
• All the shares or other specified securities for buy-back are fully paid-up
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8.  If shares or securities are listed, buy back will be in accordance with the
regulations made by SEBI
 The buy-back in respect of unlisted shares or other specified securities is in
accordance Share Capital and Debentures Rules, 2014
 No offer of buy-back shall be made within a period of one year from the
date of the closure of the preceding offer of buy-back, if any
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9.  The notice of the meeting at which the special resolution is proposed to be
passed shall be accompanied by an explanatory statement
 Time Limit
 Options for Buy-back
 Solvency Declaration
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10.  Extinguishment of Certificate
 No further issue till 6 months
 Register to be maintained
 Return of Buy Back & a Declaration
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11.  Punishment for any Default
Transfer of certain sums to capital redemption reserve account
 Capital Redemption Reserve
 Utilization of Capital Redemption Reserves
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12. Prohibition for Buy Back in certain circumstances
 Restriction on Buy Back
 Prohibitions
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13. Taxability
 Unlisted Companies
 Tax payable on amount distributed to shareholders
 Distributed Income = Buy Price – Issue Price
 Loss cannot be setoff or carried forward
 For bonus shares, Issue Price = 0
 Tax rate 20% + 10% Surcharge + 3% Educational Cess = 22.66%
 Listed companies
 Long term capital gains exemption if done through listed stock exchange
 Tax on Dividend payout to the company
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14. SEBI Guidelines
 No offer of buy-back for 15% or more of paid up capital & free reserves of company
shall be made from open market
 Not make any offer of buy-back within a period of 1 year reckoned from date of
closure of preceding offer of buy-back
 Ensure that at least 50% of amount earmarked for buy-back is utilized for buying-
back shares
 Submit information regarding shares to stock exchange on a daily basis
 Upload information regarding shares bought-back on its website on daily basis
 buy-back offer shall open not later than 7 working days from date of public
announcement & shall close within 6 months from date of opening of offer
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15. Escrow Account
 Create an escrow account for performance of its obligations
 Deposit 25% of the amount earmarked for the buy-back
 Escrow Account may be in the form of
 cash deposited with any scheduled commercial bank OR
 bank guarantee issued in favour of the merchant banker by any scheduled
commercial bank
 May be released for making payment to the shareholders subject to at least
2.5% of the amount earmarked for buy-back
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16.  In Cash Deposited
 Empower merchant banker to instruct bank to make payment of amounts lying
to credit of escrow account, to meet obligations arising out of buy-back
 In bank guarantee
 In favour of the merchant banker
 Kept valid for a period of 30 days after closure of offer or till completion of all
obligations
 Shall not be returned by the merchant banker till completion of all obligations
 Deposit (cash) with a scheduled commercial bank at least 2.5% of total amount
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17.  Fulfilling obligation, amount & guarantee remaining in escrow account shall
be released to company
 Non-compliance - forfeit escrow account
 VWAMP of shares of company during buy-back period was higher than buy-
back price as certified by Merchant banker based on inputs provided by Stock
Exchanges
 Inadequate sell orders despite buy orders placed by company as certified by e
Merchant banker based on inputs provided by Stock Exchanges
 Circumstances which were beyond the control of company & in opinion of
Board merit consideration
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18. Methods of Buyback of Listed Companies
Tender Offer
Method
Through
Open
Market
Stock
Exchange
Book
Building
Process
From Odd
Lot Holders
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19. Buy-back through tender offer
 Shareholders may be presented with a tender offer by the company to
submit, a portion or all of their shares within a time frame.
 The size & price is fixed by the company (always at a premium to market
price)
 Basic entitlement of the shareholders
 Excess tenders are not gauranteed to be bought back by the company
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20. Procedure
Approval of shareholders is obtained by a special resolution.
Notice will contain information on: Price, number of shares &
promoters
File a copy of special resolution with SEBI and concerned
stock exchanges where the shares of the company are
listed
File declaration of solvency with SEBI.
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21. Nominate Compliance Officer & investor service center
Make a public announcement & select the record
date.
File a draft letter of offer with SEBI within 7 days of
public announcement through a merchant banker.
The date of opening the offer shall not be earlier than 7
days or later than 30 days after the ‘specified date’.
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22. Deposit in an escrow account.
The offer shall remain open to the members for a period
of at least 15 days but not more than 30 days.
Verify the offers received and communicate acceptance
rejection within 15 days of the closure of offer.
Make payment to the shareholders, whose offer for buy
back has been accepted .
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23. Special Resolution
7 days
File with SE & SEBI
Public Announcement
7 days
File draft LoF
Specified Date/Dispatch
LoF
21 days
+ 7 to 30 days
Opening Day
+ 15 to 30 days
Closing Day
Verification of shares / Acceptance Rejection of
Offer
15 days
Payment of consideration / Extinguishment of shares
7 days
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24. Buy back from open market through
stock exchanges
Obtain approval of shareholders for buy back by a special
resolution.
Notice will contain: The maximum price & number of shares.
File a copy of special resolution with SEBI and concerned
stock exchanges where the shares of the company are
listed
File declaration of solvency with SEBI.
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25. Nominate Compliance Officer & investor service center
Appoint a merchant bank.
Make a PA & submit the copy of the same to SEBI
within 2 days.
Buy back shall be made only on stock exchanges
with electronic trading facility through order matching
mechanism.
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26. Furnish information to the stock exchange on
daily basis.
Complete verification of acceptances & File
the particulars of share certificates that are
extinguished with stock exchanges.
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27. Public Announcement
File copy with SEBI
Commencement of Buy Back
2 days
7 days
Purchase of Shares
15 days
Verification of Acceptances
Closure Date
Extinguishment of shares
7 days
Special / BOD Resolution
File Copy with SEBI
7 days
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28. Buy-back from open market through
book building
Special
Resolution
Declaration Of
Solvency
Appointment of
Merchant
Banker
Opening of
Escrow Account
Verification of
the offers
received
Closing of offer
for buy-back
Opening of
offer for Buy-
back
Public
Announcement
Determination
of Price
Payment to
Security
holders
Extinguishment
of Certificates
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29. Price Determination
 The final offer price shall be determined as the price at which the maximum number of shares has
been offered.
 If the acquirers accept final price, they have to accept offers up to and including the final price i.e.
480 shares (i.e. 100+164+216 shares) at the final price of Rs. 260/-.
Offer Quantity
(in nos.)
Offer Price
(Rs)
Remarks
100 240 Floor Price is Rs. 240 as
fixed by the company.
164 250
216 260 Final Price is Rs. 260 –
Maximum Quantity
54 270
10 280
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30. 15 to 30 days
Public Announcement
File copy with SEBI
Commencement of Buy Back
2 days
7 days
Completion of Buy Back
Verification of shares / Acceptance
Rejection of Offer
15 days
Payment of consideration / Extinguishment/
Return of Shares
7 days
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31. Odd lot holders
 An odd-lot buyback occurs when a company offers to purchase shares of
its stock back from people who hold less than 100 shares.
 A popular method that companies use to buy back stocks is called a Dutch
auction
 This type of offer makes it less expensive both for the company and for the
shareholders
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32. Buy-back for unlisted companies
 Method
 From the existing shareholders on proportionate basis
 By purchasing the securities issued to employees of the company
 Special Resolution
 Filing Letter Of Offer along with declaration of solvency with the registrar of companies.
 Offer Procedure
 Dispatch the offer letter immediately
 Buy back shall remain open from a period not less than 15 days & not exceeding 30 days
 Acceptance is on a proportionate basis
 Deemed acceptance
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33.  Payment to Shareholders
 Open a special bank account
 Make payment within 7 days of acceptance
 General Obligations Of the Company
 The letter of offer shall contain true, factual and material information.
 the company shall not issue any shares including by way of bonus
 The company shall testify the availability of funds
 Company shall not withdraw the offer once the draft letter of offer has been filed
 The company shall not utilise any money borrowed from Banks/Financial
instituitions
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34.  Returns to be filed with Registrar
 Extinguishment of Certificate
 Extinguish & physically destroy
 Furnish a certificate to the registrar of companies duly verified by:
i. Two whole time directors
ii. Company secretary
 Maintain records of cancelled shares
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35. Difference between buy-back ,dividends &
bonus share
Buyback of Shares Dividend Bonus Share
Share buybacks represent cash
distributed to existing shareholders
in exchange for company’s
outstanding equity.
Dividends are the portion of
corporate profits paid out to
stockholders in the form of cash.
Bonus Share is an increase in the
amount of shares of the company
with the new shares given to share
holders.
Share buybacks there's a total
flexibility for the company
Dividend payments require a
commitment from the company. -
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36. Buyback of Shares Dividend Bonus Share
Stock buybacks are tax efficient way
for companies to return cash to
shareholders
On Dividend - dividend payout tax is
paid.
Share holders do not have to pay
taxes on value of dividend.
Buying back shares is a common
technique to increase the ratios.
(EPS & RONW)
No Effect EPS will decrease.
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37. Bayer Cropscience Limited
 It is an Agri Care Company.
 Announced buy back on September 18, 2013
 Total shares for buy back 28,79,746
 Representing 7.29% of total paid up capital
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38.  Total buy back size is Rs. 454,99,98,680.
 Buy back price Rs. 1,580.
 Premium of 18.3% over the average closing prices of the Equity Shares on
BSE for 3 months.
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39.  Buy back price is 223.14% more than the book value of each share
Rs.488.95 as at March 31, 2013.
 Tender offer
 Buy back to reward the share holders.
 Increase ratios for the company.
 EPS will increase form Rs. 294.11 to Rs. 317.23
 RONW will increase from 60.15% to 78.69%
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