Provision of Buy Back are covered under section 68, 69 and 70 of the Companies Act, 2013 and Rue 17 of Companies (Share Capital & Debenture) Rules, 2014
Maximum amount of Buy back by company
Under the provisions of 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 company wants to buy back 10% or less of the total paid-up equity capital and free reserves of the company then go for Board approval route
- If 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 Share Holder approval route.
Sources of Buy Back
A company may purchase its own shares or other specified securities out of:
- its free reserves
- securities premium account
- proceeds of the issue of any shares or other specified securities
However, buy-back of any kind of shares or other specified securities shall not be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
The company shall not utilise any money borrowed from banks or financial institutions for the purpose of buying back its shares.
Buy Back from Whom:
The buy-back may be:
(a) from the existing shareholders or security holders on a proportionate basis,
(b) from the open market,
(c) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
In case the number of shares or other specified securities offered by the shareholders or security holders is more than the total number of shares or securities to be bought back by the company, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.
Return of completion of buy-back:
A company shall, after the completion of the buy-back under Section 68 of the Act, file with the Registrar of Companies and SEBI (if the company is listed) a return (in Form No. SH-11) containing such particulars relating to the buy-back within 30 days of such completion, as may be prescribed.
There shall be annexed to the return, a certificate (in Form No. SH-15) signed by two directors of the company including Managing Director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the Rules made thereunder.