Compliance Relating To Buy-Back of Shares

Compliance
Relating To
Buy-Back Of
Shares
REASONS FOR CHOOSING THE TOPIC
* DURING THE COURSE , OF TRADING AND COMMERCE

WE MAY MANY A TIMES COME ACROSS THE TERM “BUY BACK OF
SHARES”.
*MOST OF THE COMMON PEOPLE ARE NOT VERY WELL

ACQUAINTED WITH TERM , SO TO GIVE A CONCISE AND BRIEF
KNOWLEDGE ABOUT THE TOPIC , WE HAVE CHOSEN IT.
*BUY BACK OF SHARES IS SOMETHING WE SHOULD HAVE

KNOWLEDGE ABOUT SO WE CAN UNDESTAND THE FINANCIAL
IMPLICATION OF THE COMPANY .
*HENCE, WE ALL TEAM MEMBERS HAVE UNANIMOUSLY AGRRED

OVER IT.
HISTORY OF BUY-BACK
In late 1996-1999 Indian share market did not move . People

hesitated to buy and people were not interested in selling shares as
they felt that share market might go up.
Introduction of buyback in the corporate sector of India has found

favor with the regulatory authorities and received favorable
response from the Indian companies. It examines a number of
relevant issues concerning buyback of shares by companies in
India, including a comprehensive review of the theory underlying
buyback operations, legislative provisions governing share
buyback, accounting and reporting aspects of buyback, and
buyback provisions and practices prevailing in other parts of the
world.
WHAT IS BUY BACK OF SHARES ????
The repurchase of outstanding shares (repurchase) by a

company to reduce the number of shares outstanding in the
market is known as “BUY BACK OF SHARES”.
 The companies buy back shares either to increase the value of

available shares (reducing supply) or to eliminate threats by
shareholders who may be planning a hostile takeover.
 Companies may also buy back shares to pay for acquisitions

that are financed with stock swaps or to make stocks available
for employee stock option plans.
LEGAL ASPECTS OF BUY BACK (SECTION 77)
A COMPANY CAN PURCHASE ITS OWN SHARES ONLY IF
The buy back is authorized by its articles .
A special resolution in the general meeting of the company
The buy back is or less 25% of total paid capital and free reserves.
The debt-equity ratio after the buy back should not be more then twice the
capital and free reserves .
All the securities bought back are fully paid – up.
The buy back of unlisted securities should be as per central government

guidelines .
A declaration of solvency should be filed with ROC( registrar of company)
and SEBI (securities exchange board of India).
The shares bought back should be extinguished and physically destroyed.
The buy back of unlisted securities should be as per central government
guidelines .
A declaration of solvency should be filed with ROC( registrar of company)

and SEBI (securities exchange board of India).
The shares bought back should be extinguished and physically destroyed.
Buy-back shall be permissible

*From existing share holder on proportionate basis.
*From open market .
*From odd lot holders .
*Going for “ESOP” or “SWEAT EQUITY”
No further issue of securities of the same kind shall be made within 6 months
expect by
*bonus issue
* Conversion of warrant.
*“SWEAT EQUITY”
*Conversions of preference shares/debentures to equity shares
PROCEDURES BEFORE BUY BACK
THE NOTICE OF THE MEETING AT WHICH THE SPECIAL RESOLUTION IS
TO BE PASSED SHALL BE ACCOMPANIED BY
COMPLETE DISCLOSURE OF ALL AMTERIAL FACTS .
 NECESSITY FOR THE BUY- BACK .
CLASS OF SECURITES INTENED TO BE PURCHASED UNDER THE BUY –

BACK
AMOUNT TO BE INVESTED
TIME LIMIT FOR THE COMPLETEION OF THE BUY – BACK

METHODS OF BUY BACK OF
SHARES
I. OPEN MARKET SHARE PURCHASE
II. FIXED PRICE TENDER OFFER
III. DUTCH AUCTION SHARE REPURCHASE
IV. EQUAL ACCESS BUY-BACK.
V. SELECTIVE BUY-BACK.
VI. ESOP(EMLPLOYEE STOCK OPTION ) REPURCHASE.

SOURCES OF FUNDS FOR BUY-BACK
OF SHARES
i. FREE RESERVES .
ii. SECURITES PREMUIM
iii. THE PROCEEDS OF ANY SHARES OTHER SPECIFIED SECURITIES.
Note
HOWEVER, THE BUY BACK IS NOT ALLOWED OUT OF PROCEEDS OF

AN OTHER ISSUE OF SAME KIND OF SHARES OR SPECIFIED
SECURITIES .
IF BUY- BACK IS OUT FREE RESERVES SUM EQUAL TO NOMINAL

VALUE OF SHARES ABOUGHT BACK SHALL BE TRANSFERRED TO
CAPITAL REDEMPTION RESERVE ACCOUNT.
Security & Exchange
Board Of India
i. Buy-Back offer shall remain open for not less than 15 days and
not more than 30 days.
ii. The verification of shares received in Buy-Back shall be
completed within 15 days of closure of the offer and payments
made within 7 days.
iii. The company shall within 2 days of the completion of buy-back
issue a Public Advertisement in National Daily, inter-alia,
disclosing-
No of shares bought
Price at which bought
Total amount investment in Buy-Back
Details of Shareholders from whom shares exceeding 1% of
total shares bought back
The consequent changes in Capital Structure
Advantages to Share-Holders of Buy Back
1. Buy back at good premium, may increase the stock price in share
market.
2. As buy back of shares reduces outstanding shares, the EPS (EPS is

calculated by dividing net profit by outstanding shares) may look good.
The ROA (Return on Asset) and ROE (Return on Equity) may improve
by fall in outstanding shares and assets (in this scenario, excess cash).
3. Share holders will have a greater degree of flexibility in how they record
this gain and can manage their taxes better.
4. To make the Stock more attractive for the long-term investors, as it

increases Earning Per Share.
RISK
Regardless the purpose of the BUY-BACK, the result is increased risk
for the firm because of the reduced equity in the firm’s capital
structure. There are many growing companies which are facing the
risks because of BUYING-BACK of shares. Following is the Case
Study of Dell Computers
Case Study-
During 2001, the company was forced to repurchase its some of the
shares for $47 at a time the stock was trading for the Nasdaq
National Market. The company was required to pay the twice of the
market price to repurchase its shares, because the company had
earlier sold put options with strike prices that on the issued date
seemed reasonable but later turned out to be substantially higher
than the price at which stock traded in the depressed market.
According to SEC filing, dell had issued put contracts on 96 millions
of its own shares at an average exercise price of $44 per share.
Unfortunately for Dell, the purchases of its stock at inflated prices
came when the Cash Flow was being squeezed by the weak PC
Market.
CONCLUSION
The buy-back had sight impact on the fundamentals of
the economy or the company
PENALTY
If a company makes a default in complaining with the
provisions of the section or any rules and regulations
made ,the company or any officer of the company who
is in default shall be punishable with imprisonment fir
a term which may extend for 2 years or with fine
which may extend to Rs.50000 or worth both .
BIBLOGRAPHY
I. THE INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA .(ICAI)
II. WIKIPEDIA .COM
III.GOOGLE. COM
IV.SHRI L . JAYARAMAN
V. JKSC LAW BOOK

THANK YOU

Compliance Relating To Buy-Back of Shares

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Compliance Relating To Buy-Back of Shares

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Compliance

* DURING THE COURSE , OF TRADING AND COMMERCE

*MOST OF THE COMMON PEOPLE ARE NOT VERY WELL

*BUY BACK OF SHARES IS SOMETHING WE SHOULD HAVE

*HENCE, WE ALL TEAM MEMBERS HAVE UNANIMOUSLY AGRRED

In late 1996-1999 Indian share market did not move . People

Introduction of buyback in the corporate sector of India has found

The repurchase of outstanding shares (repurchase) by a

 The companies buy back shares either to increase the value of

 Companies may also buy back shares to pay for acquisitions

A COMPANY CAN PURCHASE ITS OWN SHARES ONLY IF

The buy back is authorized by its articles .

A special resolution in the general meeting of the company

All the securities bought back are fully paid – up.

The buy back of unlisted securities should be as per central government

A declaration of solvency should be filed with ROC( registrar of company)

The shares bought back should be extinguished and physically destroyed.

Buy-back shall be permissible

COMPLETE DISCLOSURE OF ALL AMTERIAL FACTS .

 NECESSITY FOR THE BUY- BACK .

CLASS OF SECURITES INTENED TO BE PURCHASED UNDER THE BUY –

TIME LIMIT FOR THE COMPLETEION OF THE BUY – BACK

II. FIXED PRICE TENDER OFFER

III. DUTCH AUCTION SHARE REPURCHASE

IV. EQUAL ACCESS BUY-BACK.

VI. ESOP(EMLPLOYEE STOCK OPTION ) REPURCHASE.

ii. SECURITES PREMUIM

iii. THE PROCEEDS OF ANY SHARES OTHER SPECIFIED SECURITIES.

HOWEVER, THE BUY BACK IS NOT ALLOWED OUT OF PROCEEDS OF

IF BUY- BACK IS OUT FREE RESERVES SUM EQUAL TO NOMINAL

2. As buy back of shares reduces outstanding shares, the EPS (EPS is

4. To make the Stock more attractive for the long-term investors, as it

II. WIKIPEDIA .COM

V. JKSC LAW BOOK

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