What is Buyback of Shares?
It is described as a procedure that enables a company to go back to its shareholders and offers to purchase from them the shares they hold, which was earlier issued by the company.
It is the reverse of raising capital.
Share buy back is a financial tool for financial re-engineering.
Reasons for Buyback of Shares
Existence of excess profits and lack of Investment options
To Increase Shareholders Value
To enable promoters to hike their stake in the company without expending any funds of their own
To prevent hostile takeovers
To substitute share repurchases for cash dividend payout
To prevent dilution of earnings
SOURCE OF BUYBACK
Free reserves
securities premium account
Proceeds of any shares or other specified securities.
PROVISIONS RELATING TO BUYBACK.
The provisions relating to buyback as per the Companies Amendment Act 1999 are as follows:
Sec 77A: Power of a company to purchase its own securities.
Sec77B: Prohibition for buyback in certain circumstances.
BUYBACK CONDITIONS & LIMITS
Section 77A(2) of the Companies Act, 1956:
Authorised by Articles of Association and a Special Resolution
Buyback should be equal to or less than 25%of the total paid up capital and free reserves
Shares to be bought back should be fully paid up
Debt Equity ratio should not exceed 2:1 post buyback
Notice of meeting to the shareholders should have all the details necessary
Buyback of shares listed on any recognised stock exchange should be in accordance with SEBI guidelines
PROHIBITION OF BUYBACK
Section 77B of the Companies Act, 1956:
Through any subsidiary company.
Through any investment company or group of investment companies.
Company is in default in repayment of deposit or interest, or redemption of debenture or preference shares or
Company is in default in payment of dividend or repayment of any term loan including interest to banks and FIs.
It is described as a procedure that enables a company to go back to its shareholders and offers to purchase from them the shares they hold, which was earlier issued by the company.
It is the reverse of raising capital.
Share buy back is a financial tool for financial re-engineering.
Reasons for Buyback of Shares
Existence of excess profits and lack of Investment options
To Increase Shareholders Value
To enable promoters to hike their stake in the company without expending any funds of their own
To prevent hostile takeovers
To substitute share repurchases for cash dividend payout
To prevent dilution of earnings
SOURCE OF BUYBACK
Free reserves
securities premium account
Proceeds of any shares or other specified securities.
PROVISIONS RELATING TO BUYBACK.
The provisions relating to buyback as per the Companies Amendment Act 1999 are as follows:
Sec 77A: Power of a company to purchase its own securities.
Sec77B: Prohibition for buyback in certain circumstances.
BUYBACK CONDITIONS & LIMITS
Section 77A(2) of the Companies Act, 1956:
Authorised by Articles of Association and a Special Resolution
Buyback should be equal to or less than 25%of the total paid up capital and free reserves
Shares to be bought back should be fully paid up
Debt Equity ratio should not exceed 2:1 post buyback
Notice of meeting to the shareholders should have all the details necessary
Buyback of shares listed on any recognised stock exchange should be in accordance with SEBI guidelines
PROHIBITION OF BUYBACK
Section 77B of the Companies Act, 1956:
Through any subsidiary company.
Through any investment company or group of investment companies.
Company is in default in repayment of deposit or interest, or redemption of debenture or preference shares or
Company is in default in payment of dividend or repayment of any term loan including interest to banks and FIs.
