A Pvt Ltd Company has issued equity shares to two shareholders- A & B, at a premium. Now, it wants to buy-back some shares from A. All the money that the company has in reserves account is because of the share premium. There are no accumulated profits. The company has also raised some money by issuing debentures. Due to this, Company has sufficient cash to buy-back the shares. All other provisions of Sec 77A are being complied with except that I am not sure what is the meaning of this clause in Sec 77A-"Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities."
Does it mean that this company in question can not buy back because it is using securities premium account which was raised because of issue of same kind of shares?
The cash is coming from the issue of debentures.
Thanks for your help.
Regards
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Buy-back query
Replies (1)
Dear Ankur,
A company may purcfhase its own shares or other specified securities out of -
(i) Its free reserves; or
(ii) the securities premium account; or
(iii) the proceeds of any shares or other specified securities;
Provided that no buy back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
In my opinion this proviso is related to only clause (iii) above. And you can buy-back shares subject to the provisions of section 77(2) out of security premium account.
Contrary views are invited.
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