buyback share

8/9/2019 Buyback Share

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:y Mansiy MansiArorarora&

uy back of Sharesuy back of Shares


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- Involves permanent reduction ofcapital without sanction of the courtwhich is illegitimate and in violationof statute law.

- to make restriction more effectiveSec.77(2) states that no publiccompany or its subsidiary privatecompany shall anyway provide loan,

guarantee , or any financialassistance to any person to buyshares in the company or its holdingcompany

Purchase by companyurchase by companyOf its own shares [S. 77]f its own shares [S. 77]


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llowing transactions are alloweThe lending of money by a banking company in

.the ordinary course of businessThe provision of money for the purchase of

fully paid shares in the company by trustees .for and on behalf of the company s employees

The lending of money by a company to itsemployees to enable them to buy fully paidshares in the company . Employee here does not

.include directors or managers


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- -y back of shares S 77-y back of shares S 77- -Section 77 A brought in by the ( ) ,ompanies Amendment Act 1999 ,has,caused this structural change in Company Law a company may buy back

.its own shares

- ( )ub section 1 -ndicates the fund out of which the exercise of Buy backill be financed . The sources allowed are the company s free, , .reserves security premium account proceeds on an earlier issue

- ( )ub section 2.Prescribes certain formalities here should be a provision in- .he articles authorising buy back of shares A specialesolution at a meeting of the shareholders should be passed.

- % amt involved in buy back should be less than 25 of the company s.total paid up capital and free reserves It should be in accordance

with regulations made by ecurities and Exchange Board of INDIA


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Sub section (3)the notice for convening the meeting of shareholders forpassing a special resolution should carry info. Prescribed bysect(3).The info is

1.a full and complete disclosure of all material facts2.the necessity for the buy back3.the class of security intended to be purchased4.the amount to be invested in buy back5.time-limit for completion of transaction

This is subject to restriction set out in sub sec(4),that everysuch transaction must be completed within 12 months from

date of special resolution


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( )ECLARATION OF SOLVENCY Sub section 6&A declaration has to be filed with Registrar SEBI before the

.resolution is implemented It has to be stated that the Boardof directors has made a full inquiry into affairs and have found

that it is capable of meeting all its liabilities and will not.be rendered insolvent for a period of 12 months from date

- .(it has to be signed by at least 2 directors of the company one)is MD-not listed companies at stock exchange are not required to

file declaration with SEBI


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Physical Destruction of securities S.77-A(7) Companies has to destroy its buy-back

securities within 7 days of the last day on whichthe buy back process is completed.

u rth e r issu e a fte r b u y b a ck. - ( )7 7 A 8co m p a n y ca n n o t m a ke a fu rth e r issu e o f th o see cu ritie s w h ich co m p a n y h a s b o u g h t b a ck w ith in a

.e rio d o f 2 4 m o n th s It m ay h o w e v e r m a ke a b o n u s ,ssu e a n d d isch a rg e its o b lig a tio n s su c h a s w a rra n tsto ck o p tio n sch e m e sw e a t e q u ity e tct is fre e to issu e o th e r ty p e s o f se cu ritie s o th e r th a necu rities b ou g h t b ack . . -egister of bought back securities S 77( )9company cannot make a further issue of those securities .hich company has bought back within a period of 24 monthst may however make a bonus issue and discharge its,bligations such as warrants stock option scheme sweatquity etct is free to issue other types of securities other than.ecurities bought back


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. - ( )turn of Buy back S 77 A 10,fter completion of buy back process &ompany has to file a return with SEBI.egistrar- eturn has to contain prescribed.articulars- hould be filed in 30 days from date of

completion. - ( )enalty S 77 A 11 default in complying with theequirements of the section and rules made

nder it has been made a punishable offence. mprisonment of 2 yrs or a fine up to. .s 50000 or both


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ransfer of money to capital/ [ . -edemption Reserves A c S 77AA] , When a company purchases its on shares out of free reserves hen aum equal to the nominal value of the shares purchased haso be transferred to the Capital Redemption Reserve Account

and its details have to .e disclosed in the balance sheet

rohibition of Buy back in[ . -ertain circumstances S 77]A buy back exercise as to be done directlyand not through themedium of other companies .ot even company s own subsidiaries

A company hall not resort to buy back if it is in defaultf deposits , redemption of debentures or preference share or.repayment of a term loan to any financial institution


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It is a UK company lawand English trusts lawcase involving the duties.owed by a nominee of shares to the beneficiary

,t determines that a beneficiary if,bsolutely entitled can instruct a bare.ominee how to deal with the shares

ending any instructions about voting from the,eneficial owner the registered holder can .ote shares in the beneficiary s interest

irby .Wilkins
http://en.wikipedia.org/wiki/UK_company_lawhttp://en.wikipedia.org/wiki/UK_company_lawhttp://en.wikipedia.org/wiki/UK_company_lawhttp://en.wikipedia.org/wiki/English_trusts_lawhttp://en.wikipedia.org/wiki/English_trusts_lawhttp://en.wikipedia.org/wiki/English_trusts_lawhttp://en.wikipedia.org/wiki/English_trusts_lawhttp://en.wikipedia.org/wiki/UK_company_law


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r Kirby was one of four people which sold a business.o Derby Paper Staining Ltd ,nfortunately the price was miscalculated and the.ompany overpaid ,t had paid by giving 16 000 worth of its shares to.he four ,he four decided voluntarily and not because of any

ight of the company arising from, ,isrepresentations to give the company back 3 000.orth of shares , ,ut then Mr Kirby argued against the chairman Mr,ilkins that the shares were held on trust for the,ndividual shareholders and so he could not vote at any.eeting on the shares r Wilkins argued that the shares would be held on.rust for the company

uick facts


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** **udgementomer J first e c i d ed t h a t t h e t r a ns f e r d i d n o t v io l a t ehe p r i n c i p l e of a c o m p a n y p u r c h a s i n g i t s o w n s h a re s .

, ,It is then said however that in any case the defendant ought not to haveexercised his voting power in respect of the shares without the direction

. .of the company I do not think that that contention is sound, Where a shareholder holds shares as a bare trustee for a third person he

is no doubt obliged to exercise his voting power in the way that thecestuiquetrust( s the person for whose benefit the trust iscreated) ,desires but unless and until the cestui que trusthas indicated

,his wish as to the way in which the voting power should be exercisedthere is no reason why the nominee should not exercise the voting power

.vested in him as a trustee e holds that voting power upon trust ,,but nless and until the e s t u i q u e t ru st ,ntervenes he must

xercise it according to his discretion in the best interestsf his e s t u i qu e t r u s t . Now here I do not know that the company ever, ,actually intervened either through its board of directors or by means of

the general meeting of its shareholders in the sense of giving any.direction to Mr Wilkins as to how he should vote in respect of these

, , ,shares and that being so unless and until he received any such directione was in my opinion justified in voting in respect of them as.is conscience dictated in the interests of the company
http://en.wikipedia.org/wiki/Cestui_que_trusthttp://en.wikipedia.org/wiki/Cestui_que_trusthttp://en.wikipedia.org/wiki/Cestui_que_trusthttp://en.wikipedia.org/wiki/Cestui_que_trusthttp://en.wikipedia.org/wiki/Cestui_que_trusthttp://en.wikipedia.org/wiki/Cestui_que_trust

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