Provision of Buy Back is covered under section 68, 69, and 70 of the Companies Act, 2013 and Rule 17 of Companies (Share Capital & Debenture) Rules, 2014
The maximum amount of Buy back by the company:
Under the provisions of the Companies Act,2013 the maximum amount of buy back permissible is 25% of paid-up equity share capital and free reserves.
Two Routes of Approval
- If the company wants to buy back 10% or less of the total paid-up equity capital and free reserves of the company then go for the Board approval route
- If a company wants to buy back 25% or less but more than 10% of the total paid-up equity capital and free reserves of the company then go for the Shareholder approval route.
Sources of Buy Back
A company can buy its own specified securities or other shares out of:
- its free preserves
- premium accountsecurity
- proceeds of the issues of specified securities or any other shares
However, buy-back of specified securities or any type of shares shall not be made out of same type of other specified securities or an earlier issue of the same kind of shares.
The company shall not utilize any money borrowed from banks or financial institutions to buy back its shares.
Buy Back from Whom:
The buy-back may be:
(a) from the existing security holders or shareholders on a proportionate basis,
(b) from the open market,
(c) by buying the securities published to workers of the company pursuant to a scheme of sweat equity or stock option.
If the number of specified security or other shares recommended by the security holders or shareholders is more than the overall number of securities or shares to be purchased back by the company, the acceptance per shareholder shall be on a proportionate basis out of the total shares offered for being bought back.
Return of completion of buy-back:
After the completion of the buy-back within Section 68 of the Act, a company shall file a return (in form no. SH-1) with the Registrar of companies and SEBI (if company is listed) containing some particles that are related to the buy-back withing 30 days of that completion, as may be directed.
The return shall be annexed, signed certificate by the two directors including the Managing Director of the company, if any, validating that the buy-back of securities with the provisions of the Rule and the Act (made thereunder) has been made in compliance.
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Posted by: CA Neetu Saini