Quick Summary
Buyback of Shares is when a company purchases its own shares from shareholders, resulting in reduction of share capital and return of money to shareholders.
Buyback of shares is governed by Section 68 of the Companies Act, 2013 and SEBI (Buy-back of Securities) Regulations, 2018 (for listed companies). It allows a company to purchase its own shares from existing shareholders.
Sources of Buyback
- Free reserves
- Securities premium account
- Proceeds of fresh issue of shares
- Cannot use borrowed funds or earlier issue of same kind of shares
Conditions
- Authorized by Articles of Association
- Special Resolution required (except for 10% or less paid-up capital + free reserves)
- Buyback must be 25% or less of aggregate of paid-up capital and free reserves
- Post-buyback debt-equity ratio not more than 2:1
- All shares fully paid-up
Methods
- Tender Offer: Offer to all shareholders on proportionate basis
- Open Market: Through stock exchange (for listed companies)
- Odd-lot: From shareholders holding odd lots
Post-Buyback Compliance
- File SH-11 with ROC within 30 days of completion
- Destroy shares bought back within 7 days of last date of completion
- Cannot make further issue of same kind of shares for 6 months
- Transfer amount to Capital Redemption Reserve
Key Points
- Company buys its own shares
- Requires Special Resolution
- Max 25% of paid-up capital + reserves
- File SH-11 within 30 days
- Destroys bought-back shares