Share buyback
This query is : Resolved
24 October 2013
pls advise Process of Share Buyback from the foreign share holder co.
24 October 2013
I will suggest you to read Master Circular on FDI issued by RBI on July 1, 2013 it may help you.
24 October 2013
Procedure for Buy-Back of shares through Tender Offer from Existing Shareholders of the Company with the approval of Shareholders via Postal Ballot
1.
Check the Articles of Association of the Company, it must contain a provision authorising the company to buy-back their own shares or other specified securities. If the Articles do not contain a provision authorising buy-back, alter the articles of association by passing a special resolution in the general meeting. [Procedure for alteration in the Articles of Association]
2.
Convene and hold a Board Meeting after giving notice to all the directors [Section 286] to discuss besides others the following matters.
· To pass a [resolution] for buy-back of shares upto 25% of the total paid up capital and free reserve of the Company and also decide the price at which the company offers to the shareholders. (Section 77A)
· To appoint a Compliance officer for ensuring compliance of the provisions of the Act, the Regulations, listing Agreement and any other applicable laws relating to Buy-back of securities and to redress the grievances of the investors.
· To Appoint Merchant Banker who will take care of the whole proceeding.
· To decide the location about the investor service centre, it is desirable that such centres are opened in all such cities where the security holders holding 10% or more of the voting rights reside.
· To decide the specified date and mention the same in the public announcement for the purpose of dispatch of letter of offer to the security holders. It should not be earlier than 30 days and not later than 42 days from the date of the public announcement.
· To approve the notice of the resolution to be sent to the shareholders.
· To fix the responsibility of the entire postal ballot process to the Company Secretary and any functional director of the Company.
· To approve the postal ballot form along with the calendar of event.
· To appoint a scrutinizer, not being an employee, who is in the opinion of the Board of directors, can conduct the postal ballot voting process in a fair and transparent manner.
Procedure for Buy-Back of shares through Tender Offer from Existing Shareholders of the Company with the approval of Shareholders via Postal Ballot
1.
Check the Articles of Association of the Company, it must contain a provision authorising the company to buy-back their own shares or other specified securities. If the Articles do not contain a provision authorising buy-back, alter the articles of association by passing a special resolution in the general meeting. [Procedure for alteration in the Articles of Association]
2.
Convene and hold a Board Meeting after giving notice to all the directors [Section 286] to discuss besides others the following matters.
· To pass a [resolution] for buy-back of shares upto 25% of the total paid up capital and free reserve of the Company and also decide the price at which the company offers to the shareholders. (Section 77A)
· To appoint a Compliance officer for ensuring compliance of the provisions of the Act, the Regulations, listing Agreement and any other applicable laws relating to Buy-back of securities and to redress the grievances of the investors.
· To Appoint Merchant Banker who will take care of the whole proceeding.
· To decide the location about the investor service centre, it is desirable that such centres are opened in all such cities where the security holders holding 10% or more of the voting rights reside.
· To decide the specified date and mention the same in the public announcement for the purpose of dispatch of letter of offer to the security holders. It should not be earlier than 30 days and not later than 42 days from the date of the public announcement.
· To approve the notice of the resolution to be sent to the shareholders.
· To fix the responsibility of the entire postal ballot process to the Company Secretary and any functional director of the Company.
· To approve the postal ballot form along with the calendar of event.
· To appoint a scrutinizer, not being an employee, who is in the opinion of the Board of directors, can conduct the postal ballot voting process in a fair and transparent manner.
24 October 2013
3.
Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting. [Clause 19 of the Standard Listing Agreement]
4.
Inform the said Stock Exchange within 15 minutes of the board Meeting, of the outcome of the meeting by letter or fax.
5.
File Board resolution along with the Calendar of event in [E-form no 61] with the Registrar of Companies within one week of the Board resolution.
6.
The resolution should be approved by ¾ majority i.e the votes cast in favour is three times or more than the votes cast against.
7.
File a certified true copy of the [special resolution] in [E-form no 23] with the concerned Registrar of Companies with in 7 days of the date of passing of the resolution and also file a copy of the same to the SEBI and Stock Exchange(s), where the securities of the company are listed.
8.
Make the payment of requisite fees, fees can be paid through Credit Card / by cash / by cheque in favour of “MCA Collection Account ICICI Bank” at the prescribed rates. (Fee Calculator)
9.
Forward to the Stock Exchange promptly three copies of the notice and a copy of the proceedings of the General Meeting. [Clauses 31(c), (d) and 33 of the Standard Listing Agreement]
10.
After it has been authorised to buy-back, make a Public announcement at least 7 days before the commencement of buy-back at least one English, Hindi and Regional language Newspaper. Such public announcement shall contain the particulars specified in Schedule II to the Regulations.
11.
A drat letter of offer, along with fees prescribed in Schedule IV to the Regulations, shall be filed with the SEBI through a merchant banker, with in 7 days of the Public Announcement and at least 21 days before dispatch of the letter of offer to the securityholders. The draft letter of offer shall include the particulars specified in Schedule III to the Regulations.
12.
A declaration of solvency in Form no 4A shall be filed with SEBI along with the draft letter of offer. It is also to be filed with Registrar of Companies simultaneously.
13.
Dispatch a letter of offer to the securityholders only after 21 days from submission of the draft letter of offer to SEBI and it should be reached at the securityholders before the issue open.
14.
Decide the date of opening of the offer, it should not be earlier than 7 days and not later than 30 days from the specified date. The offer should be opened for a period not less than 15 days and not more than 30 days from the date of despatch of letter of offer to the securityholders.
15.
Open an Escrow account with a Scheduled Commercial Bank on or before the opening of the offer and deposit therein a specified amount as and by way of security. It is 25% of the consideration payable in case the consideration does not exceed Rs. 100 crores and in case the consideration is more than Rs. 100 crores, it is 25% of Rs. 100 crores and 10% of the balance of the consideration payable.
16.
In case the shares tendered in dematerialized mode, the company require opening a Special Depository Account through the Registrar to the Offer.
17.
Open a Special Bank Account with the Banker to the Issue. This account should be opened immediately after the date of closure of the offer and deposit the whole consideration including lying in the escrow account.
18.
The verification should be completed with in 15 days from the date of closure.
19.
The payment should be made with in 7 days from the date of completion of verification of offer.
20.
Extinguish and destroy the security certificate so bought back in the presence of Registrar to the issue\ merchant banker and the Statutory Auditors of the Company within 7 days from the date of verification of securities.
21.
Furnish a certificate to SEBI and the Stock Exchange(s) with in 7 days of extinguishments and destruction of the certificates. Such certificate shall be duly verified by the Registrar to the issue/ Merchant Banker and Statutory Auditors of the Company and two whole-time directors of the Company including the Managing Director.
22.
Issue a Public advertisement in the National daily with in 2 days of completion of buy-back.
23.
Prepare a Register of Securities Bought Back in Form no 4B.
24.
File a return in Form no 4C with the concerned Registrar of Companies and SEBI within 30 days of completion of Buy-back.
3.
Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting. [Clause 19 of the Standard Listing Agreement]
4.
Inform the said Stock Exchange within 15 minutes of the board Meeting, of the outcome of the meeting by letter or fax.
5.
File Board resolution along with the Calendar of event in [E-form no 61] with the Registrar of Companies within one week of the Board resolution.
6.
The resolution should be approved by ¾ majority i.e the votes cast in favour is three times or more than the votes cast against.
7.
File a certified true copy of the [special resolution] in [E-form no 23] with the concerned Registrar of Companies with in 7 days of the date of passing of the resolution and also file a copy of the same to the SEBI and Stock Exchange(s), where the securities of the company are listed.
8.
Make the payment of requisite fees, fees can be paid through Credit Card / by cash / by cheque in favour of “MCA Collection Account ICICI Bank” at the prescribed rates. (Fee Calculator)
9.
Forward to the Stock Exchange promptly three copies of the notice and a copy of the proceedings of the General Meeting. [Clauses 31(c), (d) and 33 of the Standard Listing Agreement]
10.
After it has been authorised to buy-back, make a Public announcement at least 7 days before the commencement of buy-back at least one English, Hindi and Regional language Newspaper. Such public announcement shall contain the particulars specified in Schedule II to the Regulations.
11.
A drat letter of offer, along with fees prescribed in Schedule IV to the Regulations, shall be filed with the SEBI through a merchant banker, with in 7 days of the Public Announcement and at least 21 days before dispatch of the letter of offer to the securityholders. The draft letter of offer shall include the particulars specified in Schedule III to the Regulations.
12.
A declaration of solvency in Form no 4A shall be filed with SEBI along with the draft letter of offer. It is also to be filed with Registrar of Companies simultaneously.
13.
Dispatch a letter of offer to the securityholders only after 21 days from submission of the draft letter of offer to SEBI and it should be reached at the securityholders before the issue open.
14.
Decide the date of opening of the offer, it should not be earlier than 7 days and not later than 30 days from the specified date. The offer should be opened for a period not less than 15 days and not more than 30 days from the date of despatch of letter of offer to the securityholders.
15.
Open an Escrow account with a Scheduled Commercial Bank on or before the opening of the offer and deposit therein a specified amount as and by way of security. It is 25% of the consideration payable in case the consideration does not exceed Rs. 100 crores and in case the consideration is more than Rs. 100 crores, it is 25% of Rs. 100 crores and 10% of the balance of the consideration payable.
16.
In case the shares tendered in dematerialized mode, the company require opening a Special Depository Account through the Registrar to the Offer.
17.
Open a Special Bank Account with the Banker to the Issue. This account should be opened immediately after the date of closure of the offer and deposit the whole consideration including lying in the escrow account.
18.
The verification should be completed with in 15 days from the date of closure.
19.
The payment should be made with in 7 days from the date of completion of verification of offer.
20.
Extinguish and destroy the security certificate so bought back in the presence of Registrar to the issue\ merchant banker and the Statutory Auditors of the Company within 7 days from the date of verification of securities.
21.
Furnish a certificate to SEBI and the Stock Exchange(s) with in 7 days of extinguishments and destruction of the certificates. Such certificate shall be duly verified by the Registrar to the issue/ Merchant Banker and Statutory Auditors of the Company and two whole-time directors of the Company including the Managing Director.
22.
Issue a Public advertisement in the National daily with in 2 days of completion of buy-back.
23.
Prepare a Register of Securities Bought Back in Form no 4B.
24.
File a return in Form no 4C with the concerned Registrar of Companies and SEBI within 30 days of completion of Buy-back.
24 October 2013
NOTE :
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).
NOTE :
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).
24 October 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.
24 October 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.
(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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