Buy back percentage

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Querist : Anonymous

Querist : Anonymous (Querist)

10 June 2013 Sir,
If any percentage existed in buy back of shares

CA.Vinita Gupta

CA.Vinita Gupta (Expert)
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12 June 2013
The provisions governing the buyback of shares under companies act, 1956 is section 77A, 77AA and 77B.
An insight ot Section 77A:
Section 77A(1) : The company can purchase its own shares or buyback out of:
Free reserves.
Securities premium.
Proceeds of shares issued other than the class of shares to be bought back.
Section 77A(2) : The company cant buyback its own shares if
It is not authorized by the articles.
A special resolution is to be passed if the buyback of the share exceeds 10% of the paid up capital.
Buyback of shares can’t exceed 25% of the total paid up capital and free reserve during the financial year.
After the buyback of shares the Company’s Debt to Equity Ratio can’t exceed 2:1.
Shares which are to be bought back should be fully paid up shares.
Buyback of listed companies should comply with the regulation of SEBI.
Companies other than the listed companies should comply with buyback of shares (Rules), 1999.
Section 77A(3) : A explanatory Statement should be enclosed with the notice of general meeting stating:
Disclosure of material facts.
Necessities of buyback.
Class of share intended to buyback.
Amount of investment in buyback.
Time limit of buyback.
Section 77A(4) : Buyback should be completed within 12 Months of the date of special resolution.
Section 77A(5): Buyback of shares can be done from:
On a proportionate basis.
On odd lots
Open market.
By purchase of shares issued to the employees.
Section 77A(6) : Before commencing the buyback process all companies are required to file Form 5A and 4C with the registrar and declaring the solvency of the company and affidavit that board has made all the verification of company’s affairs. Listed companies are required to file the same forms with SEBI also.
Section 77A(7) : After the completion of the buyback process the company shall destroy all documents relating to shares bought back within 7 days.
Section 77A(8) : The company for the period 6 months can’t issue or allot the shares which are bought back under this section expect issue of bonus shares, conversion of other securities, share warrants, stock option outstanding and sweat equity shares.
Section 77A(9) : The shall maintain a registers for the share bought back with the particulars of no. of the shares bought back, class of the share bought back, date of completion of the bought back, amount paid for the buyback of shares and physical destruction of the share certificate.
Section 77A(10) : After the completion of the buyback process the company shall file with the registrar (and to SEBI in case of the listed companies) within 30 days, the particulars of the buyback.
Section 77A(11) : Any default in the complying with this provision, the officer who are responsible for such default shall punished with a penalty of Rs.50,000/- or two years imprisonment or both.
Section 77AA: This provision requires transferring the equivalent amount of the shares bought back to capital redemption reserve account.
Section 77B: No company shall buyback its own shares through subsidiary. And if the company has default in repayment of the deposit or its interest, redemption of the debentures or preference shares, payment of the dividend and repayment of the loan and its interest amount from the financial institution.

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