Buyback of Shares in India

Buy-Back of Shares 1. Companies Act, 1956: Section 77A of the Companies Act lays down the conditions governing buy-back of shares by a company. Section 77A stipulates that a buy-back can be done only out of free reserves or securities premium account or proceeds of fresh issue of shares or specified securities subject to certain terms and conditions. The conditions to be complied with by the Company for buy-back are: • • Articles of Association (AoA) of the Company provides for buyback of its own shares [Section 77A(2)(a)]. Special resolution should be passed by the shareholders in a general meeting authorizing the buy-back [Section 77A(2)(b)]. If buy-back is less than 10% of paid-up capital and free reserves and has been approved by the Board in a Board meeting, then shareholder resolution is not required. The quantum of shares to be bought-back has to be decided and cannot exceed twenty-five percent of the paid-up capital and free reserves as per last audited Balance Sheet [Section 77A(2)(c)]. The Company has to ensure that the ratio of the debt will be not more than twice the capital and its free reserves after such buyback. [Section 77(2)(d)]. Only fully paid up shares can be purchased [Section 77A(2)(e)]. The buy-back of shares should be in accordance with the regulations laid down by SEBI (for listed companies) and as per the Private Limited Company & Unlisted Public Limited (Buyback of Securities) Rules, 1999 (for non-listed companies) [Section 77A(2)(f) and (g)]. The explanatory statement to the notice of the general meeting should contain complete disclosure of all material facts, necessity of buy-back, security intended to be bought back, amount of buyback and time limit for completion of buy-back and such other disclosures as required under SEBI regulations [Section 77A(3)]. Buy-back has to be completed within 12 months of passing of Board resolution or Shareholders resolution [Section 77A(4)]. Buy-back can be made from existing shareholders on