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The process by which Company buy-back it’s Shares from the existing Shareholders usually at a price higher than the market price is known as buyback of shares. Situation when the Company buy-back the Shares, the number of shares outstanding in the market reduces/falls. It is the option available to shareholders to exit from the Company business. It is governed by section 68 of the Companies Act, 2013
➲ Use of Idle Cash:
When the company has surplus cash in hand then it can opt for buyback of its own shares from the market, in this way it can utilize its cash and may offer a good deal to its shareholders.
➲ Enhances earning per shares
As buyback leads to a decrease in paid capital of the company, means the number of shareholder gets decreases after and earning per share increases.
➲ Gain confidence in shareholder
Buyback is one of the best tools for the company who’s share price falls in the market, it will help to gain the confidence of existing shareholders.
➲ Reduces the chance of a takeover
Buyback leads to dilution of voting which will lead to the reduction of the chance of a takeover
➲ Return surplus cash to the shareholder
Buyback repays back to shareholders a good price which may be more than market price.
As per the company law, a company can perform buy-back only through using its:
However, the repurchase of any kind of shares or other specified securities can not be made from earlier issue proceeds of the same kind of shares or other specified securities
As per the company’s act 2013 following conditions must be fulfilled for the buy-back :
Step1: Call board meeting after giving proper notice and pass the necessary resolution and fix the date, time place for EGM
Step2: Call EGM and pass a special resolution for buyback
Step3: File MGT-14 within the passing of the resolution.
Step4: file declaration of solvency to ROC in form SH-9 and this declaration shall be signed by 2 directors one of them should be MD (if any)
Step5: Sending of the Letter of Offer to Shareholders OR Security Holders within 21 days of filing with (ROC) Company Registrar to ensure the Company's (Share Capital & Debentures) rule, 2014 followed
Step56 The offer for Share Buyback will remain open for at least 15 days but not more than 30 days from the day a letter of offer is dispatched.
Step7: In within 15 days from the date of closure of offer complete the verification process
Step8: open separate bank account form date from the date of the offer
Step9: make the payment to that shareholder or securities holder whose application has been selected
Step10: extinguish or destroy the securities within 7 days of the last date of completion of buy-back
Step11: File Return of buyback with the Registrar in Form No SH.11 & SEBI, if specified, upon completion of the transaction, along with the certificate in Form No SH.15 signed by 2 Directors, one of whom shall be the Managing Director (M.D), if any, certifying that the transaction of securities has been made in compliance with the provisions of the Act and the rules within 30 days of the completion.
Step12: Maintain the register of buyback of shares or other securities in Form No SH-10 at the company's registered office and hold in the custody of the secretary of the company or any other individual approved by the board on this behalf and the entries shall be authenticated by the secretary of the company or any other person authorized by the board.
As per section 70 of the company’s act 2013, a company should not buy-back its securities directly or indirectly-
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