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Procedures for buy back & cancellation of equity shares

A Raghavendra (Senior Executive - Finance & Corporate Affairs) (67 Points)

22 April 2016

Dear Members,

Please update me about the following:

a) Buyback procedures of equity shares and its limits

b) Procedures for Cancellation of Equity shares alloted and its limits.

c) R O C Compliance ti be dealt with in this regard.

Since it is a immediate requirement for me,requesting all the members of the portal to revert with your valueable replies at the earliest in this regard..

Thanks & Regards

A Raghavendra

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5 Replies

Jatin Bajaj (CS) (2930 Points)
Replied 25 April 2016

Buy Back of Shares has been defined under section 68, 69, 70 of Companies Act 2013.

1. Fund to be used from:

(i) Free Reserves

(ii) Securities Premium

(iii)- Proceeds that are generated out of issue of any shares or other specified securities

2. Company needs to open a Seprate bank account for purchase of Shares

Amount to be paid in cash

Company cannot borrow or used borrow money from Banks or Public Financial Institutions

Buy Back can be done from:

(1) From Existing Shareholders

(2)- From open Market

(3)- from employees to whom shares are issued under the scheme of ESOP/ Sweat Equity Shares

Approval from Board Members if Buy back is less than 10%

Members approval through special resolution if buy back is more than 10% but less than 25 %

Secretarial Scope of Work

Convene a Board Meeting for Amendment in AOA, Approval of buy back and Convening of EGM

Convene EGM

Opening of Seprate Bank Account

Upload letter of Offer in form SH 8 and declaration of Solvency in form SH 9

Letter of offer shall be delivered to Shareholders within 21 days from ROC filing

Offer shall be made within 15 days to 30 days from dispatch of offer letter

In case Company has received offer more than what was offered, buy back of shares shall be on proportionate basis.

If shareholder dont send Rejection to offer within 15 days from closure of offer, it is deemed accepted.

Post Buy BACK COMPLIANCE

Maintain register of shares in form SH 10

Within 7 days from complettion of Share certificates, destroy physical certificates

Certificate of Compliance in Form SH 15 duly signed by two Directors and counter signed by Company Secretary.

Return of Buy Back in Form SH 11 shall be uploded on MCA after the entire procedure.

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Sandip Goyal (Risk Advisor) (499 Points)
Replied 17 March 2020

The company can buyback its securities from-

1. Free Reserve

2. Securities Premium Account

3. Proceeds of fresh issue of shares

Conditions a company needs to comply for buying back its shares-

1. Authorization in Articles required.

2. The buyback authorized by passing resolution (BR) in board meeting only if –

a) buyback <(10% of aggregate of Paid-up Equity Capital + Free Reserve)

3. The buyback authorized by passing special resolution only if-

a) Buyback <(25% of aggregate of Paid Up Equity Capital + Free Reserve + Security

Premium)

a) Buyback <(25% of Total Paid Up Equity Capital)

b) Post Debt Equity ratio must not exceed 2:1

4. In case of Listed Company, the company shall comply with the regulations made by SEBI. In case

of Unlisted Company the company shall comply the rules prescribed by CG

5. Before Buyback, the securities must be fully paid up.

6. The buyback can be done from-

a) The existing share holders on proportionate basis

b) The open market

c) From the employees by way of stock option or sweat equity

7. Buyback comply- within 1 year of passing SR/BR

8. Time between two buyback- 1 year

9. Company shall file with the registrar a declaration of solvency within 1 year (in case of listed

company this declaration of solvency shall be filed to SEBI too)

10. Company shall extinguish and physically destroy the shares bought back within 7 days of

completion of buyback.

11. After completion of buyback, the company shall within 30 days file a return of buyback. The

return shall be filed with ROC in case of unlisted company and to ROC and SEBI in case of

unlisted company.

12. The company shall not make further issue of same kind of security within next 6 months except

by way of-

a) Bonus shares

b) Issue of shares in discharge of subsisting obligation.

13. The company shall maintain a register with the following particulars-

a) The security bought back

b) The consideration paid for the security bought back

c) The date of cancellation of securities

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Image Courtesy-Buyback of Shares - Know about Buyback Price, Premium, Dates

Jatin Bajaj (CS) (2930 Points)
Replied 18 March 2020

Subject to the provisions of section 68,69,70 of the Companies Act 2013, buy back of shares has to be from the existing shareholders or from the open market.

Buy back of shares shall not exceed 25 percent of the paid up share capital and free reserves. For buy back upto 10 percent of the paid up share capital and free reserves, board resolution is required. For buy back more than 10 percent but upto 25 percent special resolution is required.

For buy back of shares, no need to buy any amount from bank or public financial institution

For buy back of shares, funds has to be used from sum of shares issued to employees under secheme of ESOP, Free reserves, security premium account.

Debt Equity Ratio shall be not more than 2: 1

Get Demat (na) (2 Points)
Replied 16 February 2021

What is the buyback of shares??

It refers that the company is going repurchasing shares of stock that have issued to public and private investors.

The company pays shareholders the market value per share and takes ownership in their hands.
A company can purchase the shares directly from the open market or shareholders.

Following are the primary reasons for the stock buybacks:

A company wants to boose earnings per share because share buyback reduced outstanding shares in the market
The company wants to give the reward to the shareholders because the tender offer is usually more than the current price.
If the company feels that shares are undervalued so buyback option will increase the value for that company shares.
Recently TCS buyback it's shared because of the lack of growth opportunities in the IT industry this is also one of the reasons.
One of the biggest reasons for the share buyback is a tax advantage.

Conclusion:

After the budget Finance Minister Nirmala Sitharaman imposed a tax on the buyback of shares which directly affects 7 stocks.

Thank You,

get demat

Surekha gore (manager) (38 Points)
Replied 27 February 2021

Buy back is one of the most preferred way of companies to provide an exit route to its shareholders. The required number of shares are extinguished and the amount is paid to the shareholders. Section 68 of the Companies Act, 2013 provides the relevant provisions of buyback of shares. You can contact Stock Brokers from for more details.
1. Buy back sources - A company might buy back its own shares through (a) its free reserves, (b) proceeds of the issue of any shares or (c) securities premium account. The company shall not utilize any funds borrowed from the banks for the purpose of buy back of shares.