Buy Back of Securities

Buy back of securities refers to the repurchase of shares or other securities by the company from its shareholders. The company can buy back its own shares or other securities using its free reserves, securities premium account, or proceeds from the issue of any shares or other specified securities.

Legal Provisions related to Buy-Back of Shares by the Company as per the Companies Act

The Companies Act, 2013, provides the legal framework for buy-back of shares by the company. Some of the important provisions related to buy-back of shares are as follows:

1. Authorization by Special Resolution: The company can buy back its shares only after obtaining the approval of its shareholders by way of a special resolution passed at a general meeting.

2. Maximum Limit: The company cannot buy back more than 25% of its paid-up share capital and free reserves or 10% of its total paid-up share capital, whichever is higher, in a financial year.

3. Time Limit: The company can buy back its shares within a period of 1 year from the date of passing of the special resolution.

4. Sources of Funds: The company can use its free reserves, securities premium account, or proceeds from the issue of any shares or other specified securities to buy back its shares.

5. Disclosure Requirements: The company must disclose all material information related to the buy-back, such as the amount of securities to be bought back, the price at which the securities will be bought back, the number of securities bought back, and the details of the method of buy-back, in its financial statements.

Benefits of Buy-Back of Securities

Some of the benefits of buy-back of securities are as follows:

1. Increase in Shareholder Value: Buy-back of securities can increase the value of the remaining shares by reducing the supply of shares in the market.

2. Efficient use of Surplus Funds: Buy-back of securities is an efficient way of utilizing the surplus funds of the company.

3. Tax Benefits: Buy-back of securities can provide tax benefits to both the company and its shareholders.

Conclusion

Buy-back of securities is a useful tool for companies to return surplus funds to shareholders and increase shareholder value. The Companies Act, 2013, provides a legal framework for buy-back of shares by the company, and companies must comply with the provisions of the Act while undertaking buy-back of securities.