Buy back of shares
This query is : Resolved
30 January 2013
Can a buy back of shares be made for purchasing directors shares along with other share holders share ? ( Director is holding 95 % of shares )
What is the procedure for making buy back and please provide the formats for related documents ?
Assume it is a PRIVATE LIMITED COMPANY
What is the procedure for making buy back and please provide the formats for related documents ?
Assume it is a PRIVATE LIMITED COMPANY
01 February 2013
Hi
The term 'buyback' has two meanings: First, when a business or person sells something, especially shares, and then buys them again according to a fixed agreement; the buying back by a company of its shares from an investor, who put venture capital up for the formation of the company. Secondly, the buying by a corporation of its own stock in the open market in order to reduce the number of outstanding shares; the buying by a corporation of its own stock in the open market in order to reduce the number of outstanding shares.
The phrase 'buyback of shares' means the buying back of its shares or other securities by a company from the holders thereof. It is also referred to as share/stock buyback. A company limited by shares or company limited by guarantee and having a share capital buys or purchases from its shareholders the shares issued by it, at a certain price and thereby returns the share capital to those shareholders. The share capital bought back has the effect of reduction of share capital to the extent of the face value of the shares bought back and there is cash outflow from the company to the extent of the price of the shares paid to the shareholders. A buyback of shares results into the shareholders, whose shares are bought, ceasing to be the members of the company. Their names are omitted from the Register of Members. A buyback is different from redemption of share capital, e.g., redemption of redeemable preference shares.
A buyback of equity shares may be driven by any one or more of the following factors:
(1)
To increase the underlying value of the share;
(2)
To enhance Earnings Per Share (EPS);
(3)
To reduce the excess share capital;
(4)
To rationalise the capital base by writing off the capital which is lost or unrepresented by the available assets;
(5)
To pay off surplus cash not required in the business;
(6)
To increase the shareholding of the promoters or those in the management control of the company;
(7)
To support share price during period of temporary weakness;
(8)
To prevent takeover bid;
(9)
As part of total financial restructuring;
(10)
As part of compromise or arrangement (including amalgamation).
The term 'buyback' has two meanings: First, when a business or person sells something, especially shares, and then buys them again according to a fixed agreement; the buying back by a company of its shares from an investor, who put venture capital up for the formation of the company. Secondly, the buying by a corporation of its own stock in the open market in order to reduce the number of outstanding shares; the buying by a corporation of its own stock in the open market in order to reduce the number of outstanding shares.
The phrase 'buyback of shares' means the buying back of its shares or other securities by a company from the holders thereof. It is also referred to as share/stock buyback. A company limited by shares or company limited by guarantee and having a share capital buys or purchases from its shareholders the shares issued by it, at a certain price and thereby returns the share capital to those shareholders. The share capital bought back has the effect of reduction of share capital to the extent of the face value of the shares bought back and there is cash outflow from the company to the extent of the price of the shares paid to the shareholders. A buyback of shares results into the shareholders, whose shares are bought, ceasing to be the members of the company. Their names are omitted from the Register of Members. A buyback is different from redemption of share capital, e.g., redemption of redeemable preference shares.
A buyback of equity shares may be driven by any one or more of the following factors:
(1)
To increase the underlying value of the share;
(2)
To enhance Earnings Per Share (EPS);
(3)
To reduce the excess share capital;
(4)
To rationalise the capital base by writing off the capital which is lost or unrepresented by the available assets;
(5)
To pay off surplus cash not required in the business;
(6)
To increase the shareholding of the promoters or those in the management control of the company;
(7)
To support share price during period of temporary weakness;
(8)
To prevent takeover bid;
(9)
As part of total financial restructuring;
(10)
As part of compromise or arrangement (including amalgamation).
01 February 2013
A company may be benefited in any one or more of the following ways from a buyback:
(1) Flexibility to companies to reorganise their capital structure;
(2) Improving return on capital, net profitability and Earning Per Share (EPS);
(3) Rendering of better service to the remaining shareholders by way of sustained dividend and appreciation of share value in the long run;
(4) Reducing the risk of possible raids owing to lesser volume of shares in circulation;
(5) Maintenance of the management control stable and continued business policies;
(6) A viable preposition to investors to sell back the shares to the company instead of going through the secondary market mechanism;
(7) Attracting equity investments in small businesses. Small businesses, which are mainly family concerns, are reluctant to raise capital from outsiders for fear of losing of control of business to outsiders. Outsiders on their part are reluctant to contribute capital to enterprises whose shares are not easily marketable and where there is risk of being locked-in;
(8) Facilitating family rearrangements, enabling disgruntled members to realise their investments without the remaining family members being required personally to fund the purchase back of their shares;
(9) Facilitating buying out discontented shareholders or employee share holdings when the employment ceases;
(10) Eliminating fractional share holdings and odd lots.
A company may be benefited in any one or more of the following ways from a buyback:
(1) Flexibility to companies to reorganise their capital structure;
(2) Improving return on capital, net profitability and Earning Per Share (EPS);
(3) Rendering of better service to the remaining shareholders by way of sustained dividend and appreciation of share value in the long run;
(4) Reducing the risk of possible raids owing to lesser volume of shares in circulation;
(5) Maintenance of the management control stable and continued business policies;
(6) A viable preposition to investors to sell back the shares to the company instead of going through the secondary market mechanism;
(7) Attracting equity investments in small businesses. Small businesses, which are mainly family concerns, are reluctant to raise capital from outsiders for fear of losing of control of business to outsiders. Outsiders on their part are reluctant to contribute capital to enterprises whose shares are not easily marketable and where there is risk of being locked-in;
(8) Facilitating family rearrangements, enabling disgruntled members to realise their investments without the remaining family members being required personally to fund the purchase back of their shares;
(9) Facilitating buying out discontented shareholders or employee share holdings when the employment ceases;
(10) Eliminating fractional share holdings and odd lots.
01 February 2013
The following matters have a bearing on the decision to buyback securities:
(1) Non-transferability of shares during lock-in period under SEBI Guidelines.
(2) Non-transferability of shares due to the condition under an agreement with
(a) a financial or development institution or bank lending money or providing financial assistance to the company; or
(b) a venture capital company; or
(c) any other party which has lent money to the company.
(3) Non-transferability of shares due to the condition under a non-disposal undertaking given to a financial or development institution lending money or providing financial assistance to the company.
(4) Non-transferability of shares due to the prohibition under a shareholders or joint venture agreement or an instrument setting forth a family arrangement.
(5) Purchase of any shares by a company or sale of shares by a shareholder which
(a) would be in contravention of any law, rules, regulations or conditions of approval given by any authority (e.g. FIPB, RBI, DCA, etc);
(b) would require any permission or approval of financial institution, bank or other authorities;
(c) is prohibited by an order of any court.
(6) Probability of conditions under listing requirement or continued listing, such as minimum public shareholding, under rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1956, minimum number of public shareholders under clause 45 of the Listing Agreement.
(7) Probability of the buying company ceasing to be a subsidiary company (or 100% subsidiary) if as a result of buyback of equity shares held by the holding company in the subsidiary which proposes to buy back the shares from the holding company.
(8) If as result of the buyback the free reserves will diminish, its effect on
(a) the limit for acceptance of deposits under the Companies (Acceptance of Deposits) Rules under section 58A;
(b) the limit under section 372A for inter-corporate investments, loans, guarantees and securities.
(9) Probability of violation due to crossing the limit on shareholding by a director under rule 86 or 105 of the Income-tax Rules, 1962.
(10) Effect of buyback on
(a) the market price of the company's share due to reduction of floating stock in the market;
(b) the market capitalisation;
(c) borrowing capacity of the company;
(d) debt-equity ratio;
(e) other financial ratios which would upset the financial parameters which are usually applied to measure financial structure, liquidity, profitability, return on capital, etc;
(11) Interest rate on borrowing from financial institutions or banks for working capital.
The following matters have a bearing on the decision to buyback securities:
(1) Non-transferability of shares during lock-in period under SEBI Guidelines.
(2) Non-transferability of shares due to the condition under an agreement with
(a) a financial or development institution or bank lending money or providing financial assistance to the company; or
(b) a venture capital company; or
(c) any other party which has lent money to the company.
(3) Non-transferability of shares due to the condition under a non-disposal undertaking given to a financial or development institution lending money or providing financial assistance to the company.
(4) Non-transferability of shares due to the prohibition under a shareholders or joint venture agreement or an instrument setting forth a family arrangement.
(5) Purchase of any shares by a company or sale of shares by a shareholder which
(a) would be in contravention of any law, rules, regulations or conditions of approval given by any authority (e.g. FIPB, RBI, DCA, etc);
(b) would require any permission or approval of financial institution, bank or other authorities;
(c) is prohibited by an order of any court.
(6) Probability of conditions under listing requirement or continued listing, such as minimum public shareholding, under rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1956, minimum number of public shareholders under clause 45 of the Listing Agreement.
(7) Probability of the buying company ceasing to be a subsidiary company (or 100% subsidiary) if as a result of buyback of equity shares held by the holding company in the subsidiary which proposes to buy back the shares from the holding company.
(8) If as result of the buyback the free reserves will diminish, its effect on
(a) the limit for acceptance of deposits under the Companies (Acceptance of Deposits) Rules under section 58A;
(b) the limit under section 372A for inter-corporate investments, loans, guarantees and securities.
(9) Probability of violation due to crossing the limit on shareholding by a director under rule 86 or 105 of the Income-tax Rules, 1962.
(10) Effect of buyback on
(a) the market price of the company's share due to reduction of floating stock in the market;
(b) the market capitalisation;
(c) borrowing capacity of the company;
(d) debt-equity ratio;
(e) other financial ratios which would upset the financial parameters which are usually applied to measure financial structure, liquidity, profitability, return on capital, etc;
(11) Interest rate on borrowing from financial institutions or banks for working capital.
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01 February 2013
Board Resolution - Buy-back of securities without the approval of Shareholders
TYPE OF MEETING: BOARD MEETING
TYPE OF RESOLUTION: SIMPLE MAJORITY
CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF (NAME OF THE COMPANY) HELD AT THE REGISTERED OFFICE OF THE COMPANY AT (ADDRESS) ON (DATE) AT (TIME)
“RESOLVED THAT pursuant to the provisions of Section 77A, 77AA, 77B and other applicable provisions, if any, of the Companies Act, 1956 or subject to such modification and re-enactment thereof or subject to the approval of Articles of Association of the Company, the Company do buy-back from the existing shareholders of the company fully paid up [Number of Shares] of its equity shares of Rs. _____ each constituting upto ____ % of the total existing paid up equity share capital of the Company”.
“RESOVLED FURTHER THAT a draft of the declaration of solvency prepared in the prescribed form and placed before this meeting duly signed by the [Name of the Managing director] director of the Company be and is hereby approved for filing with the Registrar of Companies.”
“RESOLVED FURTHER THAT [Name of the Merchant Banker] be and is hereby appointed as the Merchant Banker of the purpose of purchase of equity shares as aforesaid and [Name of the Managing director], Managing director of the Company be and is hereby authorized to negotiate with the said Merchant Banker to fix the terms of appointment and enter into an agreement concerning their appointment.
“RESOVLED FURTHER THAT the buyback as aforesaid from the existing shareholders on a proportionate basis through the tender offer shall be completed within a period of 12 months from the date hereof or such extended time as may be permitted under the act or the Regulation or by appropriate authorities.
“RESOLVED FURTHER THAT the Board of directors of the Company be and are hereby authorized to determine the time frame for such buyback and the specific price for the buyback of equity shares of the company as aforesaid at a price not exceeding Rs. ____ per equity share, for which purpose the board is authorized to invest a maximum sum of Rs. ______________ towards buyback as aforesaid, provided that the maximum amount does not exceed 10% of the paid up capital and free reserves of the Company and the said amount towards funding the buyback be drawn out of free reserve of the Company.”
“RESOLVED FURTHER THAT the Board of directors be and are hereby authorized to do all such acts, deeds, matters and things incidental to the implementation of the scheme of buy-back as also to prefer all applications to the appropriate authorities, parties and the institutions for their requisite approvals as also to initiate all necessary actions for such questions or difficulties whatsoever which may arise in the matter and take all such steps and decisions in this regard as it may in its absolute discretion deed fit, necessary or proper.”
“RESOLVED THAT a certified copy of the resolution be given to any one concerned or interested in the matter.”
Board Resolution - Buy-back of securities without the approval of Shareholders
TYPE OF MEETING: BOARD MEETING
TYPE OF RESOLUTION: SIMPLE MAJORITY
CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF (NAME OF THE COMPANY) HELD AT THE REGISTERED OFFICE OF THE COMPANY AT (ADDRESS) ON (DATE) AT (TIME)
“RESOLVED THAT pursuant to the provisions of Section 77A, 77AA, 77B and other applicable provisions, if any, of the Companies Act, 1956 or subject to such modification and re-enactment thereof or subject to the approval of Articles of Association of the Company, the Company do buy-back from the existing shareholders of the company fully paid up [Number of Shares] of its equity shares of Rs. _____ each constituting upto ____ % of the total existing paid up equity share capital of the Company”.
“RESOVLED FURTHER THAT a draft of the declaration of solvency prepared in the prescribed form and placed before this meeting duly signed by the [Name of the Managing director] director of the Company be and is hereby approved for filing with the Registrar of Companies.”
“RESOLVED FURTHER THAT [Name of the Merchant Banker] be and is hereby appointed as the Merchant Banker of the purpose of purchase of equity shares as aforesaid and [Name of the Managing director], Managing director of the Company be and is hereby authorized to negotiate with the said Merchant Banker to fix the terms of appointment and enter into an agreement concerning their appointment.
“RESOVLED FURTHER THAT the buyback as aforesaid from the existing shareholders on a proportionate basis through the tender offer shall be completed within a period of 12 months from the date hereof or such extended time as may be permitted under the act or the Regulation or by appropriate authorities.
“RESOLVED FURTHER THAT the Board of directors of the Company be and are hereby authorized to determine the time frame for such buyback and the specific price for the buyback of equity shares of the company as aforesaid at a price not exceeding Rs. ____ per equity share, for which purpose the board is authorized to invest a maximum sum of Rs. ______________ towards buyback as aforesaid, provided that the maximum amount does not exceed 10% of the paid up capital and free reserves of the Company and the said amount towards funding the buyback be drawn out of free reserve of the Company.”
“RESOLVED FURTHER THAT the Board of directors be and are hereby authorized to do all such acts, deeds, matters and things incidental to the implementation of the scheme of buy-back as also to prefer all applications to the appropriate authorities, parties and the institutions for their requisite approvals as also to initiate all necessary actions for such questions or difficulties whatsoever which may arise in the matter and take all such steps and decisions in this regard as it may in its absolute discretion deed fit, necessary or proper.”
“RESOLVED THAT a certified copy of the resolution be given to any one concerned or interested in the matter.”
01 February 2013
SHAREHOLDERS RESOLUTION:
CERTIFIED TRUE COPY OF THE EXTRA-ORDINARY MEETING OF THE SHAREHOLDERS OF (NAME OF THE COMPANY) HELD AT THE REGISTERED OFFICE OF THE COMPANY AT (ADDRESS) ON (DATE) AT (TIME)
“RESOLVED THAT pursuant to the provisions of Section 77A, 77AA, 77B and other applicable provisions, if any, of the Companies Act, 1956 or subject to such modification and re-enactment thereof or subject to the approval of Articles of Association of the Company, the Company do buy-back from the existing shareholders of the company fully paid up [Number of Shares] of its equity shares of Rs. _____ each constituting upto ____ % of the total existing paid up equity share capital of the Company”.
“RESOVLED FURTHER THAT the buyback as aforesaid from the existing shareholders on a proportionate basis through the tender offer shall be completed within a period of 12 months from the date hereof or such extended time as may be permitted under the act or the Regulation or by appropriate authorities.
“RESOLVED FURTHER THAT the Board of directors of the Company be and are hereby authorized to determine the time frame for such buyback and the specific price for the buyback of equity shares of the company as aforesaid at a price not exceeding Rs. ____ per equity share, for which purpose the board is authorized to invest a maximum sum of Rs. ______________ towards buyback as aforesaid, provided that the maximum amount does not exceed 25% of the paid up capital and free reserves of the Company and the said amount towards funding the buyback be drawn out of free reserve of the Company.”
“RESOLVED FURTHER THAT the Board of directors be and are hereby authorized to do all such acts, deeds, matters and things including the appointment of Merchant Banker, Brokers, Bankers, Solicitors, Accountants, Registrar, Advertisement Agencies, other advisors or consultants incidental to the implementation of the scheme of buy-back as also to prefer all applications to the appropriate authorities, parties and the institutions for their requisite approvals as also to initiate all necessary actions for such questions or difficulties whatsoever which may arise in the matter and take all such steps and decisions in this regard as it may in its absolute discretion deed fit, necessary or proper.”
“RESOLVED THAT a certified copy of the resolution be given to any one concerned or interested in the matter.”
SHAREHOLDERS RESOLUTION:
CERTIFIED TRUE COPY OF THE EXTRA-ORDINARY MEETING OF THE SHAREHOLDERS OF (NAME OF THE COMPANY) HELD AT THE REGISTERED OFFICE OF THE COMPANY AT (ADDRESS) ON (DATE) AT (TIME)
“RESOLVED THAT pursuant to the provisions of Section 77A, 77AA, 77B and other applicable provisions, if any, of the Companies Act, 1956 or subject to such modification and re-enactment thereof or subject to the approval of Articles of Association of the Company, the Company do buy-back from the existing shareholders of the company fully paid up [Number of Shares] of its equity shares of Rs. _____ each constituting upto ____ % of the total existing paid up equity share capital of the Company”.
“RESOVLED FURTHER THAT the buyback as aforesaid from the existing shareholders on a proportionate basis through the tender offer shall be completed within a period of 12 months from the date hereof or such extended time as may be permitted under the act or the Regulation or by appropriate authorities.
“RESOLVED FURTHER THAT the Board of directors of the Company be and are hereby authorized to determine the time frame for such buyback and the specific price for the buyback of equity shares of the company as aforesaid at a price not exceeding Rs. ____ per equity share, for which purpose the board is authorized to invest a maximum sum of Rs. ______________ towards buyback as aforesaid, provided that the maximum amount does not exceed 25% of the paid up capital and free reserves of the Company and the said amount towards funding the buyback be drawn out of free reserve of the Company.”
“RESOLVED FURTHER THAT the Board of directors be and are hereby authorized to do all such acts, deeds, matters and things including the appointment of Merchant Banker, Brokers, Bankers, Solicitors, Accountants, Registrar, Advertisement Agencies, other advisors or consultants incidental to the implementation of the scheme of buy-back as also to prefer all applications to the appropriate authorities, parties and the institutions for their requisite approvals as also to initiate all necessary actions for such questions or difficulties whatsoever which may arise in the matter and take all such steps and decisions in this regard as it may in its absolute discretion deed fit, necessary or proper.”
“RESOLVED THAT a certified copy of the resolution be given to any one concerned or interested in the matter.”
12 February 2013
Thank you Sir..got to know a lot..
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