ALL ABOUT BUY-BACK OF SHARES WITH PRACTICAL APPROACH
(For
Unlisted Companies)
· PROVISIONS UNDER THE COMPANIES ACT, 2013 (‘THE ACT’) FOR BUY-BACK OF
SHARES:
Under Section
68, 69 and 70 of the Companies Act, 2013 a company may
Buy-back its own securities and Rule 17 of Companies (Share Capital
& Debenture) Rules, 2014 contains the regulations regarding buy-back of
securities for unlisted companies.
· IMPORTANT NOTE RELATED TO MAXIMUM AMOUNT AND SHARES FOR BUYBACK:
Below Provision of Restriction is for Buyback of 25% by
Shareholders Approval Route
Maximum
amount permissible for the buy-back: - First Calculate 25% of paid-up
equity capital and free reserves, it will be the Amount that will be available
for Buyback.
Maximum
Paid up Equity Share Capital for Buy-back: - 25% of its total paid up
equity share capital.
· BUYBACK CALCULATION:
Board Route: 10% or less of the total paid-up
equity capital and free reserves of the company.
Shareholders Route: 25% or less of the total paid-up
equity capital and free reserves of the company
Important Note: - Free Reserve
includes Securities Premium as per the provisions of the Companies Act, 2013,
therefore Securities Premium will be added under Free Reserve for the
Calculation of Buyback.
Go for Buyback throw Board Route
for 10% or less. Buyback for more than 10% but less than 25% then go for
Shareholders Route.
· SOURCES OF BUY-BACK:
Section 68 (1) of the Act
provides that buy-back of shares can be financed only out of,—
Ø its free reserves;
Ø the securities
premium account; or
Ø the proceeds
of the issue of any shares or other specified securities:
(Provided that no buy-back of
any kind of shares or other specified securities shall be made out of the
proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities)
· DEMAT FACILITY AND ISIN NO. REQUIREMENT:-
Ø Buyback in
Case of For Private Co.-No any Requirement of Demat Facility and ISIN Number.
Ø Buyback in
Case of Public Limited Company: - It is mandatory to give Demat Facility to
Shareholders and should have ISIN Number as well as all the Shares of
Directors, promoters and KMP should be in Demat Form.
· CONDITIONS AND MAIN PROVISION FOR A BUY-BACK:
Section 68 (2) of the Companies Act
provides that a company can buy-back its shares or other specified securities
only when-
Ø HOW MUCH BUYBACK IS POSSIBLE :-
v The Board
has the Power up to 10% - The buy-back is 10% or less of the total paid-up
equity capital and free reserves of the company and such buy-back
has been authorized by the Board by means of a resolution passed at
Board meeting;
v The Shareholders
has the Power More than 10 but Less than 25% - The overall limit of buy-back is
25% or less of the total paid-up equity capital and free reserves of
the company with Approval of Shareholders by General Meeting by Special
Resolution.
v Number of
shares to be bought back in respect of Equity shares should not exceed 25% of
its total paid up equity share capital.
Ø AUTHORITY IN ARTICLE OF ASSOCIATION:
- The buy-back is authorized by its articles, if not have the power in
Article then first alters the Article of Association.
Ø DEBT-EQUITY RATIO: - The
buy-back debt-equity ratio should be within the permissible ration of 2:1
range.
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.
Ø BUYBACK COMPLETION TIMELINE: - Every
buy-back is required to be completed within 12 months from the date of passing the
Special Resolution or the Board Resolution, as the case may be.
Ø CRR: Where a
Company purchases its own shares out of free reserves or securities premium
account then a sum equal to nominal value of the shares purchased has to be
transferred to the CRR A/c.
Ø RESTRICTIONS
ON BUY-BACK: Section 70 (1) of the Companies Act restricts modes
of Buy-back. The companies are restricted to Buy-back its shares-
v Through any
subsidiary company including its own subsidiary companies.
v Through any
investment company or group of investment companies; or
v if a
default, is made by the company, in the repayment of deposits
Ø RESTRICTION ON WITHDRAWAL OF BUYBACK:
- The Company shall not withdraw the offer once it has announced the offer
to the shareholders.
Ø RESTRICTION ON USE ANY MEANS OF FUND
FOR PAYMENT OF BUYBACK:- The company shall not utilize any money
borrowed from banks or financial institutions for the purpose of buying back
its shares.
Ø OTHER TERMS:
v No offer of
buy-back under this sub-section 68 (2) shall be made within a period of 1 year
reckoned from the date of the closure of the preceding offer of buy-back.
v A company
buying back its securities is prohibited from making a further issue of
securities within a period of 6 months.
AUDITORS
CERTIFICATE AND BALANCE SHEET RELATED PROVISION:
Ø
A REPORT ADDRESSED TO THE BOARD OF DIRECTORS
BY THE COMPANY’S AUDITORS STATING THAT:
i. They have inquired into
the company’s state of affairs;
ii. The amount of the permissible capital payment for the securities in
question is in their view properly determined;
iii. That the audited accounts on the basis of which calculation with
reference to buy back is done is not more than six months old from the date of
offer document; and
iv.
The Board of directors
have formed the opinion as specified in point 14 on reasonable grounds and that
the company, having regard to its state of affairs, shall not be rendered
insolvent within a period of one year from that date.
Ø
AUDITED AND UNAUDITED ACCOUNTS REQUIRMENT
The audited
account on the basis of which calculation with reference to buy back is done is
not more than six months old from the date of offer document.
Provided
that where the audited accounts are more than six months old, the
calculations with reference to buy back shall be on the basis of un-audited
accounts not older than six months from the date of offer document which
are subjected to limited review by the auditors of the company."
MCA E-FORMS RELATED TO BUYBACK
ü
E-Form MGT-14
ü
E-Form SH-8
ü
E-Form SH-9
ü
E-Form SH-11
OTHER DOCS REQUIRED FOR BUYBACK:
ü Certified Copy of BR
ü
Buyback Notice of EGM
with Explanatory
ü
Certified Copy of SR with
Explanatory Statement
ü
Affidavit as Declaration
of Solvency
ü
Audited Financial Details
of Last 3 years
ü
Auditors Report as Certificate
of Declaration
ü
Details of Promoters of
the Company
ü
SH 10-Description of
shares or other specified securities bought back
ü
Particulars relating to
holders of securities buyback
ü
SH 15 - Compliance
Certificate
ü
Holders of securities
before and after buy-back
ü
Declaration by Directors
on Completion of Buyback
ü Statement of Assets and Liabilities (is not more than six months old
from the date of offer document)
PROCESS OF
BUYBACK:
v Board
Meeting.
v EGM and File MGT-14.
v File with the Registrar of Companies a letter of offer in Form No.
SH-8.
v Declaration of Solvency is required to be filed with the Registrar in SH-9
and verified by an affidavit to guarantee its solvency for at least a year
after the completion of buy-back.
v Letter of offer needs to be dispatched to the Shareholders or security
holders within 20 days from its filing with Registrar of Companies.
v
The offer for buy-back
should remain open for a period for a maximum period of 30 days from the date
of dispatch of the letter of offer. (Provided that where all members of a
company agree, the offer for buy-back may remain open for a period less than
fifteen days.)
v
The company should
complete the verifications of the offers received within 15 days from the date
of closure of the offer and the shares or other securities lodged shall be
deemed to be accepted unless a communication of rejection is made within 21
days from the date of closure of the offer.
v
The company shall
immediately after the date of closure of the offer, open a separate bank
account and deposit therein, the total amount payable as consideration for the
shares offered for buy back.
v
The company should make
payment within 7 days.
v
A company after the
completion of buy-back is required to extinguish and physically destroy its
securities within 7 days of the last day on which the buyback process is
completed.
v
The company, shall
maintain a register of shares or other securities which have been bought-back
in Form No. SH.10, it will be attached in Form SH-11.
v On completion of the buy-back process, the company shall within a
period of 30 days file with the Registrar a return in the Form No. SH-11
with a certificate in Form No. SH- 15.
Time Line of Buy-Back:
No. of
days/ time taken
|
Activity
|
X Days
|
Holding of BOARD MEETING for
1. Considering buy back proposal,
2. Approving buy back price
3. Notice of EOGM
4. Approving Letter of Offer
5. Approval of Statement of A/c and Auditors
Report
|
Signing Date of Statement of A/c and Auditors
Report
|
|
X Days
|
Issue of Notice With Explanatory Statement (as
mentioned) to all the members
|
X+25
|
Holding EGM and passing Special Resolution
for Buyback
|
X+27
|
Obtaining
1. DECLARATION OF SOLVENCY (Verified by an
AFFIDAVIT) in E- FORM SH-9 and
2. Filing of draft Letter of Offer with the ROC
along with the declaration of solvency in E-FORM SH-8
|
X+27
|
Filing of Form MGT-14 with the ROC (for
Registering Special Resolution Within 30 days of EGM)
|
X+27
|
Dispatch of letter of offer to all members after
filing the same with ROC but not later than 20 days from its filing with the
ROC.
(Opening after one day of date of Letter)
*Letter date will be the date of BM and to be
signed by 2 Directors
|
X+30
|
The offer for buy-back shall remain open for a
period of not less than 15 days and not exceeding 30 days from the date of
dispatch of the letter of offer.
*it can be less than 15 days provided that where
all the members agree.
|
X+32
|
Verification of offers to be completed within 15
days from the date of the closure of the offer and the shares or other
securities lodged shall be deemed to be accepted unless a communication of
rejection is made within 21days from the date of closure of the offer.
*Acceptance/rejection of the offer
|
X+33
|
Open a special bank account and deposit therein
such sum, as would make up the entire sum due and payable as consideration
for the buy-back
* Immediately on closure of offer
|
X+39
|
Making payment in cash or bank draft/pay order to
those shareholders whose offer has been accepted or return the share
certificates to the shareholders forthwith.
* Dispatch of Consideration Within 7 days from
completion of verification
|
X+39
|
The company shall maintain a register of shares
or other securities which have been bought-back in Form No. SH.10
* Immediately after completion of acceptance
|
X+39
|
Extinguish and physically destroy the shares
bought back in the presence of the Company Secretary in whole time practice
* Within 7 days from completion of acceptance
|
X+40
|
File requisite form SH-11 (Form
SH-15 as attachment) with the ROC
* Within 30 days from completion of acceptance
|
If the Company will give Shorter Notice for EGM and also will able to
take approval from Shareholders for Opening of Letter of Offer for less than 15
days then this buyback Period can be reduced to 15 to 20 days.
You can mail and contact me for any type of format related to Buyback.
CS
VIKAS GUPTA
Company
Secretary (ICSI)
Mobile
No. +91-97815-80561, +91-78892-56900
E-Mail:
csvikasgupta91@gmail.com
Superb sir. Keep up the good work
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