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of shares is a financial strategy implemented by a company in order to realign
and restructure its financial resources and also to achieve its optimum
shareholder value and to prevent unwanted takeovers. Further, Buyback strategy
has several advantages such as it is an alternative mode of the reduction in
capital without requiring any approval of the Court or CLB(NCLT), improves
earnings per share (EPS), return on capital (ROC), return on net worth, returns
surplus cash to the concerned shareholders, also provides for an additional
exit route to the current investors, enhances the management stake in the
company, supports share prices during the bear market and lastly serves the
equity more efficiently and effectively.
Buyback of shares is the repurchase of its outstanding shares by a company. In order to reorganize its share capital, the company generally does Buyback of securities for enhancing shareholder’s value. buy-Back of Securities Registration is an important mode of Capital Restructuring. It is the method of Financial Restructuring of a Company involving a re-arrangement of its financial structure to make the Company’s finances more balanced.
Buyback leads to a reduction in an outstanding number of equity shares, which may lead to an increase in earnings per equity shares and subsequently enhanced return on net worth and creation of long-term value of continuing shareholders. Buy Back of securities simply implies purchase of its own shares & other specified securities by a Company.
A Company generally opts for buy-back of its own shares for the following reasons: –
According to section 68(1) of the Companies Act, 2013, a company whether private or public, may purchase its own shares or other specified securities out of
However, Method for buy-back of shares or other specified securities can be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
The buyback may be
Also, Read: Process for Buyback of Shares as per Companies Act 2013.
A company can’t directly or indirectly buy back its securities: –
A company can’t buy back its securities if it commits the following defaults to: –
A Company also can’t buy back its securities if it has not complied with the following provisions of Companies Act, 2013: –
A buyback process starts with passing a resolution in the board of the meeting or shareholders resolution through postal ballot which contains buyback offer and ends with the public announcement in a national daily on the successful completion of the buyback. A broad process of the buyback is as under:
Since stamp duty is payable on “transfer” of shares, Buy-back cannot be equated with ‘transfer”. No Stamp Duty is payable in case of buyback of shares as the company is buying back its own shares.
company can use a maximum of 25 per cent of the aggregate of its available free
reserves and paid-up capital for the process ofthe buyback. Further, for the
process of the buyback, there is a need to pass a special resolution at the
general meeting. However, if in case the concerned company plans to use less
than 10 per cent of its reserves, then,in this case,only a board resolution is
a company cannot go for a second buyback offer within the period of one year
starting from the date of the closure of the last buyback. Furthermore, there
are some time-bound limitations also applicable tothe
further share issuances like the preferential allotment or the bonus issue post
a buyback. Lastly, the main reason behind keeping these checks was to ensure
that companies do not misuse the prescribed buyback mechanism.
No further issue of securities is
allowed within 6 Months of buy back except for following listed cases –
As per section 69 of the Companies Act,
2013, if a Company wants to brought back it shares out of free reserves orout
of the SPA (securities premium account), then in this case an amount equal to
the nominal value of the shares is required to be transferred to the CRR (Capital
Redemption Reserve Account). Such transfer in detailed form is required to be
disclosed in the Balance sheet. Further, the amount transferred in the Capital
Redemption Reserve (CRR) Account may be utilized for paying company’s unissued
sharesto the concerned members as the fully paid bonus shares.
The buyback is nothing but the reorganization of share capital which results in a reduction of share capital in their capital structure. If you are looking for complying with the process of Buy-back of your company, Enterslice can help you out with the end to end process. For details, please visit our website www.enterslice.com or email your queries at email@example.com
Buyback of Shares: Key Considerations under Corporate Law.
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