This provision is stated under the Companies Act, 2013 as Section 68 deals with the buyback of its securities for that purpose there are certain powers to buy back it for the company.
A corporation may buy its shares or other specified securities with funds from:
- its free reserves,
- the securities premium account,
- the proceeds of the issuance of any shares or other specified securities.
There shall be no buy-back of any kind of shares or any other specified securities from the proceeds of a previous issue of the same kind of shares or any other specified securities.
- The buy-back is permitted by the articles of incorporation;
- A special resolution authorizing the buy-back was passed by the company’s general meeting:
- Special Resolution is not required- if;
- The buy-back represents 10% or less of the company’s total paid-up equity capital and free reserves;
- The Board of Directors has authorized the buy-back by a resolution voted at its meeting;
- The buyback is limited to twenty-five percent of the company’s total paid-up capital and free reserves.
The reference to twenty-five percent in this clause about the buy-back of equity shares in any financial year will be interpreted concerning its total paid-up equity capital in that financial year.
- After buy-back, the ratio of the company’s secured and unsecured debts owed is not more than twice its paid-up capital and free reserves.
The Central Government may notify a greater debt-to-capital ratio and free reserves for a class or classes of firms by order.
- All of the shares or other specified securities for buy-back are fully paid up; the buy-back of shares or other specified securities listed on any recognized stock exchange complies with the Securities and Exchange Board’s regulations, and the buy-back of shares or other specified securities other than those listed in clause (f) complies with such rules as may be prescribed;
No offer of buy-back under this section may be made for one year from the previous offer of buy-closure, back’s if any.
MODES OF BUY-BACK:
The Buy-back may be:
- by purchasing securities issued to employees of the company shall be subject to a stock option or sweat equity scheme on a proportionate basis from existing shareholders or security holders; on the open market; or by purchasing securities granted to employees of the company required to adhere to a stock option or sweat equity scheme.
PERIOD OF BUY-BACK:
From the date of issuance of the letter of offer, the buy-back offer shall be open for a duration of not less than fifteen days and not more than thirty days.
If the number of shares or other specified securities given by shareholders or security holders exceeds the entire number of shares or securities to be bought back by the company, each shareholder’s acceptance will be proportionate to the total number of shares offered for a buyback.