1. Buy Back means repurchase by a company of its own shares in order to reduce the number of shares in the market. Buy Buck is exercised either to increase the value of shares or to eliminate the threats from the shareholders who may be looking for a controlling stake.

 

2. Conditions for Buy Back Offer:

 

• Securities offered for buy-back must be fully paid-up.

 

• The buy-back must be authorized by the articles of association of the company.

 

• There must be a gap of at least one year between two buy back offers by the company.

 

• Buy back must be authorized by a Special Resolution. But if the buyback

amounts to 10% or less of the total paid-up equity capital and free reserves of the company then the Board resolution is enough and the company is not required to pass any special resolution.

 

• A company can buy-back up to 25% of the aggregate of paid-up capital and free reserves of the company. However, in case of buy back of equity shares the limit of 25% of paid up capital shall be construed as 25% of Equity paid up capital.

 

3. Source:

 

The buyback can be financed by the company from

• Its free reserves;
• The securities premium account; or
• The proceeds of the issue of any kind of securities other than those proposed to be bought back. For example, if the company wants to buy back its equity shares than it can’t do so from the proceeds of an earlier issue of equity shares.

 

4. Offer of Buy Back:

 

               The company can buy back its securities

 

• By making an offer to its existing shareholders on proportionate basis;

 

                                                Or

• From open market;

                                     Or

 

• By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

 

 

5. Time Limit:

 

The company shall complete buy-back within a period of one year from the date of passing of special resolution, or board resolution as the case may be.

 

6. Conditions to be complied after buy back:

 

• The company shall not make a further issue of the same kind of shares within a period of 6 months except

 

• by way of a bonus issue or
• in the discharge of  subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or

 

• The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.

 

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