Query on accounting
This query is : Resolved
16 June 2013
Can anybody explain the concept called "Buyback of own Debentures'?
17 June 2013
Buy back of securities simply implies purchase of its own shares by the Company. Till the issue of these Rules, buy back of shares was prohibited under the law and by introducing section 77A by Companies ( Amendment ) Act, 1999, effective from 31.10. 1998. The Company generally resorts to it for the following reasons :
1) to enhance the true or intrinsic value of its shares.
2) to return surplus cash to its shareholders.
3) to achieve desired capital structure.
The buy-back of the shares or other specified securities, if listed on a stock exchange, shall be carried out in accordance with the Regulations framed by the SEBI.
However, in the case of securities of unlisted companies, the buy-back shall be done as per the guidelines framed by the Central Government.
Securities includes:
i) shares, scrips, stocks, bonds, debentures, debentures stock or other marketable hybrid securities of a like nature in or of any incorporated company or other body corporate;
ii) derivative;
iii) units or any other instruments issued by any collective investment scheme to the investors in such schemes;
iv) Government securities;
v) Such other instruments as may be declared by the Central Government to be securities: ( not so far ) and
vi) Rights or interest in such securities.
“Hybrid means any security which has the character of more than one type of securities, including their derivatives”.
1) to enhance the true or intrinsic value of its shares.
2) to return surplus cash to its shareholders.
3) to achieve desired capital structure.
The buy-back of the shares or other specified securities, if listed on a stock exchange, shall be carried out in accordance with the Regulations framed by the SEBI.
However, in the case of securities of unlisted companies, the buy-back shall be done as per the guidelines framed by the Central Government.
Securities includes:
i) shares, scrips, stocks, bonds, debentures, debentures stock or other marketable hybrid securities of a like nature in or of any incorporated company or other body corporate;
ii) derivative;
iii) units or any other instruments issued by any collective investment scheme to the investors in such schemes;
iv) Government securities;
v) Such other instruments as may be declared by the Central Government to be securities: ( not so far ) and
vi) Rights or interest in such securities.
“Hybrid means any security which has the character of more than one type of securities, including their derivatives”.
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17 June 2013
PROCEDURAL FORMALITIES
The process of Buy-back, inter-alia, includes the following steps to be taken up by the Company:
1. A Board resolution should be passed at a duly convened Board meeting authorising buy-back and approving the draft notice for convening Extra-ordinary General Meeting to pass the necessary resolution(s) and amending Articles of Association, if required.
2. Notice convening EGM should be sent to each and every shareholder entitled to receive and attend the general meeting along with an explanatory statement containing prescribed particulars.
3. Necessary resolution(s) should be passed at the Extra-ordinary General Meeting of the members of the Company authorising the Company to buy-back its own shares / securities and amending Articles of Association, if required.
4. As soon as the Company has passed the special resolution for buy-back and before making the buy-back, the Company shall file with the Registrar of Companies the following forms/documents:
Form No 23 pursuant to Section 192 of the Act.
Declaration of Solvency in Form No 4A signed by two directors including the Managing Director, if any of the Company and duly verified by way of an affidavit.
A draft letter of Offer containing prescribed particulars. On filing of the same the offer becomes irrevocable on the part of the Company.
5. Letter of offer, shall be sent to the shareholders of the Company, within 21 days of filing of draft letter of offer with the ROC.
6. The letter of offer should contain inter alia the following :-
• true factual and material information;
• no misleading information;
• a statement that the directors of the company accept the responsibility for the information contained in it.
7. No shares including bonus shares shall be issued till the date of the closure of the offer of buy-back of shares.
8. Confirm in the letter of offer the opening of a separate bank account testifying the availability of funds earmarked for it and also about payment of consideration only by way of cash or Bank Draft/pay order.
9. Once the draft letter of offer has been filed with the Registrar of Companies, it shall not be withdrawn.
10. Any money borrowed from Banks/Financial Institutions shall not be used for the purpose of buying back the company's shares.
11. The offer should remain open for a period not less than 15 days and not exceeding 30 days from the date of despatch of letter of offer.
12. The Company shall complete the verification of the offers received from the shareholders within 15 days from the date of closure of offer and the shares lodged shall be deemed to be accepted unless shareholders are communicated otherwise within 21 days from the closure of the offer.
13. In case of the number of shares offered by the shareholders is more than the total number of shares to be brought back by the company, see that the acceptance per shareholder is made on proportionate basis.
14. The Company should make arrangement to ensure that payment is made to the shareholders within 7 days of the time specified in clause 12, supra, by opening a special bank account, immediately after the closure of offer.
15. The share certificates should be extinguished and physically destroyed by the Company within 7 days of acceptance of shares. And a certificate to this effect shall be filed with ROC duly verified by two whole time directors including Managing Director, if any and a Company Secretary in whole time Practice within 7 days of the extinguishment and destruction of share certificates.
16. As soon as the buy-back is complete the Company shall file with The Registrar of Companies within 30 days of such completion a return containing prescribed particulars called return of buy-back.
17. The Company should maintain a Register of Shares Bought Back by the Company in the prescribed form.
The process of Buy-back, inter-alia, includes the following steps to be taken up by the Company:
1. A Board resolution should be passed at a duly convened Board meeting authorising buy-back and approving the draft notice for convening Extra-ordinary General Meeting to pass the necessary resolution(s) and amending Articles of Association, if required.
2. Notice convening EGM should be sent to each and every shareholder entitled to receive and attend the general meeting along with an explanatory statement containing prescribed particulars.
3. Necessary resolution(s) should be passed at the Extra-ordinary General Meeting of the members of the Company authorising the Company to buy-back its own shares / securities and amending Articles of Association, if required.
4. As soon as the Company has passed the special resolution for buy-back and before making the buy-back, the Company shall file with the Registrar of Companies the following forms/documents:
Form No 23 pursuant to Section 192 of the Act.
Declaration of Solvency in Form No 4A signed by two directors including the Managing Director, if any of the Company and duly verified by way of an affidavit.
A draft letter of Offer containing prescribed particulars. On filing of the same the offer becomes irrevocable on the part of the Company.
5. Letter of offer, shall be sent to the shareholders of the Company, within 21 days of filing of draft letter of offer with the ROC.
6. The letter of offer should contain inter alia the following :-
• true factual and material information;
• no misleading information;
• a statement that the directors of the company accept the responsibility for the information contained in it.
7. No shares including bonus shares shall be issued till the date of the closure of the offer of buy-back of shares.
8. Confirm in the letter of offer the opening of a separate bank account testifying the availability of funds earmarked for it and also about payment of consideration only by way of cash or Bank Draft/pay order.
9. Once the draft letter of offer has been filed with the Registrar of Companies, it shall not be withdrawn.
10. Any money borrowed from Banks/Financial Institutions shall not be used for the purpose of buying back the company's shares.
11. The offer should remain open for a period not less than 15 days and not exceeding 30 days from the date of despatch of letter of offer.
12. The Company shall complete the verification of the offers received from the shareholders within 15 days from the date of closure of offer and the shares lodged shall be deemed to be accepted unless shareholders are communicated otherwise within 21 days from the closure of the offer.
13. In case of the number of shares offered by the shareholders is more than the total number of shares to be brought back by the company, see that the acceptance per shareholder is made on proportionate basis.
14. The Company should make arrangement to ensure that payment is made to the shareholders within 7 days of the time specified in clause 12, supra, by opening a special bank account, immediately after the closure of offer.
15. The share certificates should be extinguished and physically destroyed by the Company within 7 days of acceptance of shares. And a certificate to this effect shall be filed with ROC duly verified by two whole time directors including Managing Director, if any and a Company Secretary in whole time Practice within 7 days of the extinguishment and destruction of share certificates.
16. As soon as the buy-back is complete the Company shall file with The Registrar of Companies within 30 days of such completion a return containing prescribed particulars called return of buy-back.
17. The Company should maintain a Register of Shares Bought Back by the Company in the prescribed form.
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