Buy back of shares of a pvt ltd company

Dear all, A private limited company has two directors with 51% and 49% of shares and the problem is that the 49% share holder wants to retire and want to sell the shares and 51% director was not financially sound to buy the same and there are no buyers available in outside market.

the 49% share holder deseprately want to sell the shares and is it possible for a company buy its own shares by providing land that company holds in its name equivalent to the share's value by transfering the name from company to individual (ie) 49% share holder so that he can sell the land and get money? the 51% share holder aggrees for the same but to know what the law says and is this feasable and requesting you all to help in this by providing where to start. also would like to know will the company suffers any taxation on this? regards

Anushka A shetty

As per the provisions of Companies Act 2013, no company (Public Company or Private Company) can buy its own share (sec 67).

The general rule states that no Public Company shall give financial assistance for purchase of its own shares or of its security. Here financial assistance refers to every type of financial assistance weather it is direct or indirect or by way of loan or guarantee. However this particular section has the following exceptions-

1. Lending of money by a banking company in the ordinary course of business.

2. The provision of money by a company in accordance with any scheme approved by a company through a special resolution and in accordance with such requirements as may be prescribed for the purchase of the fully paid up shares of the company or its holding company.

3. The giving of loans by a company to a person in the employment of the company other than it’s director or key managerial personnel for the amount not exceeding their salary or wages for a period of 6 month with a view of enabling them to purchase fully paid up shares in the company or its holding company. (I.e. the loan given by the company to its employees other than directors and key managerial person not exceeding their salary or wages of 6 months enabling them to purchase the fully paid up shares of the same company.)

A company cannot buy its own shares with an intention for investment. However a company can buy its own shares with an intention to cancel it later on within 7days on fulfilling every condition prescribe.

A company cannot purchase the shares of its subsidiary or of its holding. However it has following exceptions-

A subsidiary company can become the member of its holding company and can vote in its meeting where the subsidiary is holding shares in the capacity of a legal representative of a deceased member of the holding company and where the subsidiary is holding shares as a trustee.
A subsidiary company can become the member of its holding company and can vote in it’s meeting where the subsidiary company was a member of holding company either before the commencement of the act or before becoming the subsidiary of that company.

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Hope this clears your doubts!