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Buy back of shares for a pvt.ltd company

Janaki (Student) (31 Points)

27 March 2012

Can a private limited company buy back its own shares? If buy back is at face value itself, then there is no capital gain for shareholders. If that is the case, can they take the advantage of indexation and take it as Long Term Capital Loss? Or will it be beneficial for the company to declare dividend instead of going for buy back?

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3 Replies

Ajinkya Kurdukar (Lawyer) (44 Points)
Replied 27 March 2012

Hi,

To declaire dividend is a completely different issue altogather. the company may declaire dividend only in case there is a profit with the coampny.

About the buy back, the process is a little complex one. surely a pvt comany can buy back its shares. with regards to the capital loss in the hands of the shareholders, yeas they can take the benifit of the same. but as a matter of fact whaich shareholder will do it is the question.. i mean look, if you as a shareholder hold a share that you had bought for Rs. 100 (including premium) and your company is willing to buy it back at Rs5 will you ake up the offer to suffer the losst?? why not instead hold the share?

PRAFULLA (article) (47 Points)
Replied 27 March 2012

i agree with the Ajinkya (lawyer)

Janaki (Student) (31 Points)
Replied 29 March 2012

1.There are only two directors in a Pvt.Ltd and they themselves are promoters also. They have got sufficient cash and networth requirement as per RBI norms also increased. so they want to go for buy back, and such buy back should benefit the company as well as shareholders. They bought the shares @ Rs.10 each and now the buy back is also @ Rs.10 each. Now considering the above case, can they take the advantage of indexation?

2. "Buy Back is long process".............can u please explain why it is long process? and is there any practical disadvantage in future if we go for buy back?