{"id":6924,"date":"2018-02-02T14:25:20","date_gmt":"2018-02-02T08:55:20","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=6924"},"modified":"2020-04-06T16:37:17","modified_gmt":"2020-04-06T11:07:17","slug":"buy-back-securities","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/buy-back-securities\/","title":{"rendered":"What is Buy-Back of Securities?"},"content":{"rendered":"<p class=\"has-drop-cap\">Buyback\nof shares is a financial strategy implemented by a company in order to realign\nand restructure its financial resources and also to achieve its optimum\n<a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Shareholder&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A shareholder is an individual or entity that owns at least one share of a company&amp;#039;s stock, granting them partial ownership of the company. This status allows them certain rights, including(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/shareholder\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>shareholder<\/a> value and to prevent unwanted takeovers. Further, Buyback strategy\nhas several advantages such as it is an alternative mode of the reduction in\ncapital without requiring any approval of the Court or CLB(NCLT), improves\nearnings per share (EPS), return on capital (ROC), return on net worth, returns\nsurplus cash to the concerned shareholders, also provides for an additional\nexit route to the current investors, enhances the management stake in the\ncompany, supports share prices during the bear <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Market&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A market is a structured environment, either physical or virtual, where buyers and sellers convene to trade goods and services. This trading hub operates based on the principles of supply and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/market\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>market<\/a> and lastly serves the\nequity more efficiently and effectively.<\/p>\n\n\n\n<p>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&rsquo;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&rsquo;s finances more balanced.<\/p>\n\n\n\n<p>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 &amp; other specified securities by a Company.<\/p>\n\n\n\n<p>A Company generally opts for buy-back of its own shares for the following reasons: &ndash;<\/p>\n\n\n\n<ul><li>To improve shareholders net worth value resulting in higher EPS.<\/li><li>As a defense Mechanism, Buy Back provides a safeguard against hostile take-overs bids by increasing promoters&rsquo; shareholding.<\/li><li>To return surplus cash to shareholders.<\/li><li>When shares are thinly traded\/ undervalued, to provide an additional exit route to Shareholder.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Sources of Buyback of Securities:<\/strong><\/h2>\n\n\n\n<p>According to section 68(1) of the <a href=\"http:\/\/www.mca.gov.in\/MinistryV2\/companiesact2013.html\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Companies Act, 2013<\/a>, a company whether private or public, may purchase its own shares or other specified securities out of<\/p>\n\n\n\n<ul><li>Its Free Reserves<\/li><li>Securities Premium Account<\/li><li>The proceeds of any shares or other specified securities.<\/li><\/ul>\n\n\n\n<p>However, <a href=\"https:\/\/enterslice.com\/learning\/method-for-buyback-of-shares\/\" target=\"_blank\" rel=\"noopener noreferrer\">Method for buy-back of shares<\/a> 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.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Methods of buyback:<\/strong><\/h2>\n\n\n\n<p>The buyback may be<\/p>\n\n\n\n<ul><li>from existing shareholders;<\/li><li>or from the open Market;<\/li><li>By purchasing the securities issued to employees of the company in pursuant to a scheme of stock option or sweat equity Employee stock option purchase scheme (ESOP).<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conditions required to be fulfilled for the Buyback of Securities<\/strong><\/h2>\n\n\n\n<ol><li>Buyback must be authorized by Article of Association (AoA);<\/li><li>If the percentage of buyback shall not exceed 10% of total paid-up equity capital and free reserves, it is to be authorized by board by way of Board Resolution not by circulation or; if percentage is exceeded by 10% but not more than 25% of its aggregate total paid-up share capital and free reserves, then shareholders resolution is required by way of Special Resolution;<\/li><li>Buyback should not exceed 25% of its paid-up equity share capital in one Financial Year;<\/li><li>Post-Buy-back, the Debt Equity Ratio of the company should not exceed 2:1;<\/li><li>Equity Shares to be brought back must be fully paid up;<\/li><li>Buy-back should be completed within 1 year of passing of the resolution.<\/li><\/ol>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/process-for-buyback-of-shares-as-per-companies-act-2013\/\" target=\"_blank\" rel=\"noopener noreferrer\">Process for Buyback of Shares as per Companies Act 2013<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Prohibition for buyback in certain circumstances<\/strong><\/h2>\n\n\n\n<p>A company can&rsquo;t directly or indirectly buy back its securities: &ndash;<\/p>\n\n\n\n<ul><li>Through any subsidiary company including its own subsidiary companies<\/li><li>Through an investment company or group of investment companies<\/li><\/ul>\n\n\n\n<p>A company can&rsquo;t buy back its securities if it commits the following defaults to: &ndash;<\/p>\n\n\n\n<ol><li>Repayment of deposits and payment of interest thereon;<\/li><li>Redemption of debentures or preference shares;<\/li><li>Payment of dividend;<\/li><li>Repayment of any term loan or interest payable thereon.<\/li><\/ol>\n\n\n\n<p>A Company also can&rsquo;t buy back its securities if it has not complied with the following provisions of Companies Act, 2013: &ndash;<\/p>\n\n\n\n<ol><li>Section 92: Annual Return;<\/li><li>Section 123: Declaration and payment of Dividend;<\/li><li>Section 127: Failure to pay Dividend;<\/li><li>Section 129: Failure to give a true and fair statement in the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Financial_statement\" target=\"_blank\" rel=\"noopener noreferrer\">Financial Statement<\/a> of the Company.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The process<\/strong><strong> of Buyback:<\/strong><strong>&nbsp;<\/strong><\/h2>\n\n\n\n<p>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:<\/p>\n\n\n\n<ul><li><strong>Appointment of Merchant Bankers\/ Registrar<\/strong>: whenever a company wants to do a buyback of securities, the Board has to appoint a Merchant Banker who must be registered with SEBI. He has to comply with the whole procedure of buyback with concerned authority.<\/li><li><strong>Filing the resolution with SEBI\/ Exchange: <\/strong>After passing board&rsquo;s resolution or shareholder&rsquo;s resolution as the case may be, <strong><a href=\"https:\/\/enterslice.com\/merchant-bankers-license-in-india\" target=\"_blank\" rel=\"noopener noreferrer\">Merchant Banker License<\/a><\/strong> has to send a copy of the resolution to SEBI and Recognized Stock exchanges where the registered office is situated.<\/li><li><strong>Public Announcement: the <\/strong>public announcement is to be made within seven working days from the passing of Resolution. Simultaneously with the issue of such public announcement, the company shall file a copy of public announcement with the Board i.e. SEBI and stock exchange where securities are listed along with fees as prescribed by Schedule.<\/li><li><strong>Determination of offer price, opening, and closure of buyback offer:<\/strong> The buy-back offer shall open not later than seven working days from the date of public announcement.<\/li><li><strong>Acceptance and payment to security holders: <\/strong>Company has to accept the payment and deposit in a separate escrow account.<\/li><li><strong>Extinguishment of security:<\/strong> The Company shall extinguish and physically destroy the security certificates within seven working days and intimate to the stock<\/li><li><strong>Filing the return with Roc and SEBI: <\/strong>The company, after the completion of the buy-back under these rules, shall file with the Registrar, and in case of a listed company with the Registrar and the Securities and Exchange Board of India, a return in the Form SH &ndash; 11 along with the fee.<\/li><li><strong>The issue<\/strong><strong> of public advertisement:<\/strong> After the completion of Buy Back Process, the Merchant Banker has to issue advertisement in the National Daily Newspaper for the closure of the issue.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Applicability of Stamp Duty<\/strong>:<\/h2>\n\n\n\n<p>Since stamp duty is payable on &ldquo;transfer&rdquo; of shares, Buy-back cannot be equated with &lsquo;transfer&rdquo;. No Stamp Duty is payable in case of buyback of shares as the company is buying back its own shares.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When can a Company come up with Buyback offer?<\/h2>\n\n\n\n<p>A\ncompany can use a maximum of 25 per cent of the aggregate of its available free\nreserves and paid-up capital for the process ofthe buyback. Further, for the\nprocess of the buyback, there is a need to pass a special resolution at the\ngeneral meeting. However, if in case the concerned company plans to use less\nthan 10 per cent of its reserves, then,in this case,only a board resolution is\nrequired.<\/p>\n\n\n\n<p>Further,\na company cannot go for a second buyback offer within the period of one year\nstarting from the date of the closure of the last buyback. Furthermore, there\nare some time-bound limitations also applicable tothe\nfurther share issuances like the preferential <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Allotment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An allotment is the systematic distribution of business resources, often pertaining to the distribution of shares during initial public offerings (IPOs) to underwriting firms or to new and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/allotment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>allotment<\/a> or the bonus issue post\na buyback. Lastly, the main reason behind keeping these checks was to ensure\nthat companies do not misuse the prescribed buyback mechanism.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">No Further Issue of Securities<\/h2>\n\n\n\n<p><strong>No further issue of securities is\nallowed within 6 Months of buy back except for following listed cases &ndash;<\/strong><strong><\/strong><\/p>\n\n\n\n<ol><li>Issue of Bonus Shares <\/li><li>Conversion of Warrants<\/li><li>Employee Stock Option Scheme<\/li><li>Sweat Equity Shares<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">Transfer of Certain Amount to Capital Redemption Reserve Account (CRR)<\/h2>\n\n\n\n<p>As per section 69 of the Companies Act,\n2013, if a Company wants to brought back it shares out of free reserves orout\nof the SPA (securities premium account), then in this case an amount equal to\nthe nominal value of the shares is required to be transferred to the CRR (Capital\nRedemption Reserve Account). Such transfer in detailed form is required to be\ndisclosed in the Balance sheet. Further, the amount transferred in the Capital\nRedemption Reserve (CRR) Account may be utilized for paying company&rsquo;s unissued\nsharesto the concerned members as the fully paid bonus shares.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Companies Act, 1956 v. Companies Act, 2013<\/strong><\/h2>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  <strong>Particulars<\/strong>\n  <\/td><td>\n  <strong>Provisions of the Companies\n  Act, 1956<\/strong>\n  <\/td><td>\n  <strong>Provisions of the Companies\n  Act, 2013<\/strong>\n  <\/td><\/tr><tr><td>\n  Definition of the Free Reserves has now been\n  changed.\n  <\/td><td>\n  Free Reserves comprises of\n  <\/td><td>\n  Free Reserves comprises of\n  <\/td><\/tr><tr><td>\n  Free reserves for the distribution as dividend\n  +\n  Credit of the SPA (securities premium account)\n  <\/td><td>\n  Free reserves for the distribution as dividend\n  +\n  SPA (Securities premium account)\n  <\/td><\/tr><tr><td>\n  Gap between 2 buyback offers is now clearly\n  defined in the New Act, i.e. the Companies Act, 2013\n  <\/td><td>\n  Minimum gap of 365 days is required from the date\n  of the preceding offer of buy back.\n  <\/td><td>\n  Minimum gap of 1 year is required from the date\n  of&nbsp;the <strong>closure&nbsp;<\/strong>of the preceding offer of buy back.\n  <\/td><\/tr><tr><td>\n  Buy back from an odd lot has now been dispensed\n  with in the Companies Act, 2013.\n  <\/td><td>\n  Buy back could be done from:\n  Existing shareholdersOpen marketOdd lotsemployees\n  \n  \n  \n  <\/td><td>\n  Buy back can now be done from\n  Existing ShareholdersOpen marketemployees\n  \n  \n  <\/td><\/tr><tr><td>\n  Penalty has now been increased in the New Act,\n  i.e. Companies Act, 2013\n  <\/td><td>\n  For company and any other officer in default:\n  fine &ndash; INR 50,000, orImprisonment upto 2 years,\n  \n  Or both\n  <\/td><td>\n  \n   For Company:Fine &ndash; INR 1,00,000 which\n  may extend up to 3,00,000\n  Officer in default:Imprisonment upto 3 yearsFine &ndash; INR 1,00,000 which\n  may extend up to 3,00,000\n  \n  \n  \n  \n  Or both\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\">Examples of Buyback of Shares<\/h2>\n\n\n\n<ol><li>Firstly, Between the period of 1 February,&nbsp;2012, and\n19 January,&nbsp;2013,&nbsp;<strong>Reliance Industries<\/strong>&nbsp;carried\nout their biggest buyback of shares worth Rs 10,440 crores.&nbsp;However,\nReliance Industries bought back their shares worth only over Rs 3,900 croresby\nway of open market purchases and achieving about 38 per cent of the total\ntarget. Lastly, the stock gained 8 per cent during the said buyback period.<\/li><li>Next, in the year 2005,&nbsp;<strong>Reliance Industries<\/strong>&nbsp;again\nbought back 28,69,495 of their shares in a Rs 3,000 crore buyback by way of\nopen market purchases. However, the stock value had increasedby 39 per cent\nduring this period.<\/li><li>In the year 2016, state-run&nbsp;<strong>NMDC<\/strong>&nbsp;came\nout with a buyback offer of Rs 7,527 per share by way of a tender offer. Further,\nthe offer period started on September 19 and then closed on the 30, and moreover,\nit is significant to note that it mopped up 99.11 crores shares, or 123.77 per\ncent valid bids against 80.08 crores shares kept in the buyback.&nbsp;Further,\nthe shares were bought back effectively at an offer price of Rs 94 per share. During\nthis period the stock value rose 2.2 per cent.<\/li><li>The <strong>Cairn India<\/strong>, from the time period,\nstarting from 23 January,&nbsp;2014, and ending on 22 July, 2014,&nbsp;carried\nout a process of buy back of shares worth Rs 5,725 crore. But the company bought\nback only 36,703,839 equity shares comprising only 21.48 per cent of the\nmaximum target of 170,895,522. Further, the company paid a maximum of Rs. 335\nper equity and the lowest price of Rs. 318 per equity share for the issue\npriced at Rs. 335 per share. So, the total amount invested in the buyback\nprocess was Rs 12,254 crore. That omitted any transaction costs and is representing\n21.41 per cent of the total buyback size.&nbsp;&nbsp;During this time, the\nstock value gained 5.7 per cent.<\/li><li>The <strong>Coal India<\/strong> in the year 2016, announced\na buy back process of Rs 3,650 crore by way of a tender route on a\nproportionate <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Basis&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In finance, the &amp;quot;basis&amp;quot; is a term with several applications, including representing the difference between the spot price and the future contract price of an asset, which is vital in investment(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/basis\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>basis<\/a>. The offer was opened between October 3 and October 18, and\nthe company was able to buy back only a total of 10.9 crore shares. During this\ntimes company&rsquo;s stock value fell 4.6 per cent.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion:<\/strong><\/h2>\n\n\n\n<p>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 <a href=\"https:\/\/enterslice.com\" target=\"_blank\" rel=\"noopener noreferrer\">www.enterslice.com<\/a> or email your queries at info@enterslice.com<\/p>\n\n\n\n<div class=\"read\"><p><b>Buyback of Shares:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/buyback-of-shares-key-considerations-under-corporate-law\/\" target=\"_blank\" rel=\"noopener noreferrer\">Key Considerations under Corporate Law<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Buyback 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 [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":6926,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[1592,1590,1593],"acf":{"service_id":"220"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Buy-Back of Securities Registration in india<\/title>\n<meta name=\"description\" content=\"Buyback of Securities shares is the repurchase of its outstanding shares by a company. 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A company can\u2019t directly or indirectly buy back its securities.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/buy-back-securities\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:author\" content=\"enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2018-02-02T08:55:20+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-04-06T11:07:17+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2018\/02\/Securities.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"719\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Narendra Kumar","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/04\/nk-1.jpg","authorDescription":"Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.","postViews":643,"readingTime":7,"nextPost":{"id":6928,"slug":"company-registration-taiwan"},"prevPost":{"id":6921,"slug":"list-bse-sme-exchange"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2018\/02\/Securities.jpeg","postTerms":"Latest News","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/6924"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=6924"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/6924\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/6926"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=6924"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=6924"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=6924"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}