Buy back

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Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2012 The company has to buy back its shares at the market value or the value which is taken by the company from the shareholder ??

Amol S Joglekar

Amol S Joglekar (Expert)
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14 September 2012 As per the resolutions passed in the general meeting. This also needs a prior APPROVAL.

Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2012 if the company decides to buy back at the rate as same as the face value then is there any use of securities premium ????

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 When a company decides to buy back its shares, the price at which the buyback occurs can vary depending on several factors. Here’s an explanation based on common scenarios:

1. **Market Value**: Typically, when a company buys back its shares at "market value," it refers to the prevailing market price of the shares at the time of the buyback. This is often the price at which shares are traded on a stock exchange or the fair value determined by the company if the shares are not publicly traded. The market value ensures that shareholders receive a fair price based on current market conditions.

2. **Price Set by the Company**: In some cases, the company may buy back shares at a price determined internally, which could be different from the market value. This could be based on the face value of the shares or another method of valuation specified in the company’s buyback resolution.

Regarding the use of securities premium:

- **Securities Premium**: Securities premium is the amount received by a company over and above the face value of its shares when they are issued. It is a reserve that can only be used for specific purposes as per company law, such as writing off preliminary expenses, providing for the premium payable on redemption of preference shares, and more.

- **Buyback at Face Value**: If a company decides to buy back its shares at the face value (par value) or a value lower than the securities premium, it does not directly impact the securities premium account. The securities premium remains as a reserve and cannot be utilized for the buyback unless explicitly allowed by law, which is not typically the case.

**Key Points to Consider:**

- **Legal Compliance**: Companies need to comply with the provisions of the Companies Act, 2013, and other applicable laws while conducting a share buyback.

- **Resolution and Approval**: A share buyback must be authorized by a special resolution passed by the shareholders in a general meeting, and the buyback must comply with the limits and conditions set out in the law.

- **Purpose of Buyback**: Companies may undertake share buybacks for various reasons, such as returning surplus cash to shareholders, boosting earnings per share, or reducing the number of outstanding shares to enhance shareholder value.

In conclusion, whether a company buys back its shares at market value or another specified price, the use of securities premium is generally not linked to the buyback price unless the law explicitly allows it. The securities premium remains a reserve and must be utilized according to the legal provisions applicable to reserves under the Companies Act.

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