1. Introduction

Buy-back refers to the purchase by a company of its own shares or other specified securities. For private companies and unlisted public companies,         buy-back is primarily governed by Sections 68, 69 and 70 of the Companies Act, 2013 (“Act”) read with Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 (“Rules”).

2. Key Conditions for Buy-back

A company may buy back its shares/securities subject to the following conditions:

3. Sources of Funds

Buy-back may be financed out of:

• Free Reserves;
• Securities Premium Account; or
• Proceeds of issue of shares or other specified securities, subject to the statutory restriction on using proceeds of an earlier issue of the same kind of securities.

Where buy-back is made out of free reserves or securities premium, an amount equal to the nominal value of shares bought back is required to be transferred to the Capital Redemption Reserve Account under Section 69.

STEPS FOR BUY BACK OF SECURILTIES FOR UNLISTED COMPANIES

1. Articles of Association (AOA):

Verify whether the AOA authorises buy-back of securities. If not, alter the AOA by passing a Special Resolution under Section 14 before proceeding with the buy-back

2. Availability of Financial Statements/Accounts for Computation of amount/quantity of securities to be bought back:

The Financial Statements/Accounts should be audited and not more than six months old from the date of offer document and in case 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.

3. Issue notice of Board Meeting:

 The Company has to issue 07 days’ notice or shorter notice, for convening a board meeting to pass a board Resolution for authorization of buy back and approve notice of general meeting, if required.

4. Convene a Board Meeting:

The Company has to convene Board Meeting for passing a board Resolution for authorization of buy back and approve notice of general meeting, if required for the same.

5. File e-form MGT-14 to ROC

The Company has to file form MGT 14 to RoC, within 30 days of board meeting. [This step may be removed, where Special Resolution is required from members of the Company, for Buy Back of securities]

6. Issue notice of General Meeting along with explanatory statements:

 The Company has to issue not less than clear twenty-one days’ notice of General Meeting. [Shorter notice may be issued if prior consent (in writing or electronic mode) is received:-

(i) in the case of an annual general meeting, by not less than ninety-five percent of the members entitled to vote thereat.

(ii) in the case of any other general meeting, by members of the company—

• holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than ninety-five percent. of  such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
• having, if the company has no share capital, not less than ninety-five percent. of the total voting power exercisable at that meeting.

7. Convene General Meeting and pass Special Resolution: [Ref: Section 68(2)(b)]

The Company has to pass special resolution(s) for approval of buy back of securities and alteration of Articles of Association (AOA), if any required & file MGT-14 within 30 days.

8. Filing of SH-8 & SH-9 (Letter of Offer and Declaration of Solvency ) 

9. Dispatch of Letter of Offer (LOF) to Shareholders immediately after filing the same with the Registrar of Companies but not later than twenty days from its filing with the Registrar of Companies. 

10. Opening and closure of offer for Buy Back:

The offer for Buy back will remain open for Min. 15 days and max. 30 days from dispatch of Letter of Offer.

11. Verifications of bids received:

The Company has to verify all bids 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 twenty one days from the date of closure of the offer.

12. Opening of a separate Bank account:

The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the shares tendered for buy-back.

13. Payment of consideration to shareholders:

The company shall within 07 days of verifications, make payment of consideration in cash to those shareholders or security holders whose securities have been accepted and return the share certificates to the shareholders or security holders whose securities have not been accepted.

14. Extinguishing and physically destroying the shares or securities certificates:

The company shall extinguish and physically destroy the shares or securities so bought back within 07 days of the last date of completion (after payment) of buy-back.

15. Restriction on further issue of securities:

The company shall not issue make a further issue of the same kind of shares or other securities including allotment of new shares under section 62(1)(a)[Right issue] or other specified securities within a period of six 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 conversion of preference  shares or debentures into equity shares.

16. Return of Buy Back in form SH-11 with RoC:

The company, after the completion of the buy-back (after Payment /return to shareholders), shall file with the RoC a return in the form No. SH.11 along a declaration signed by two directors of the company including the 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. Entries to be made in the Statutory Register.

17. Completion time of Buy back:

Buy Back process shall be completed within a period of one year from the date of passing of the special resolution, or the board resolution passed in meeting of Board, as the case may be.

NOTE:

• Check for any restriction under Section 70 (e.g., default in repayment of deposits, redemption, filing non-compliance, etc.).
• Ensure compliance with FEMA if shareholders include non-residents.