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

1. BUY BACK OF SHARES
Presented By,
Bibhu Kalyan Rauta
Mail id- csbibhukalyan@gmail.com

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. 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. 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. 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. 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. 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. 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. 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. METHODS OF BUY-BACK
Book- Building
Process
Stock
Exchange

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. 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. Income tax Aspects
Stamp Duty on Buy-back

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. 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. 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.