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Question

What is buy-back of shares?


Solution

When a company repurchase its own share from the market to reduce the number of share it is called buy-back of shares. the procedure for buy back of share would be as follows - 

(i) Articles of the Association must authorise the company for the buy-back of shares.

(ii) A special resolution must be passed in the companies' Annual general body meeting.

(iii) The amount of buy-back of shares should not exceed 25% of the paid-up capital and free reserves.

(iv) The debt-equity ratio should not be more than a ratio of 2:1 after the buyback.

(v) All the shares of buy-back should be fully paid-up.

(vi) The buy-back of the shares should be completed within 12 months from the date of passing the special resolution.

(vii) The company should file a solvency declaration with the Registrar and SEBI which must be signed by at least two directors of the company.

Sources for Buy-back of Share as per Section 68 (1) of the Companies Act, 2013:

(i) Free reserves.

(ii) Securities premium account.

(iii) Proceeds 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 the earlier issues of the similar kind of shares or specified securities.

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