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What is buy-back of shares

shwetha (CWA learner) (447 Points)

21 November 2011

what things motivates a company to buy back their own shares? what is use of it? what kind of adjustments we hve to make at that time?

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RAMESH KUMAR VERMA ( CS PURSUING ) (43848 Points)
Replied 21 November 2011

The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake.

FOR MORE INFO:

https://legalserviceindia.com/articles/shares.htm

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Phalgun (Audit Manager) (327 Points)
Replied 21 November 2011

Refer provisons of section 77 of the companies act 1956.

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GHANSHYAM DAS MITTAL (CA Article) (44 Points)
Replied 21 November 2011

Objectives

i. To increase promoters holding

ii. Increase earning per share

iii. To pay surplus cash not required by business etc.

What are the resources for Buy Back:

(i) free reserves

(ii) securities premium account

(iii) proceeds of any shares or other specified securities.

The buyback is subject the provisions as stated in Sec 77A, 77AA & 77B of the Companies Act, 1956

Regards

2 Like

shwetha (CWA learner) (447 Points)
Replied 21 November 2011

Ramesh and Ghanshyam very informative messages. Also Phalgun thanku so much

CA Vanamala Phani Kumar (Proprietor of M/s Vanamala and Co) (972 Points)
Replied 21 November 2011

1.Company to raise worth of share value

Many companies do buyback of shares to increase the EPS of the company’s shares, as after buyback the number of outstanding shares will decrease it will lead to increase in the earning per share of the company.

2. When Company has excess cash from Borrowings

company has excess cash reserves but not many new profitableprojects to invest in, companies tend to go for buyback of shares.

3. When company doesnt want to transfer their ownership

Many times promoter wants to increase the stake in the company andbuy back of shares is an ideal way of doing that, in some cases it is done in order to reduce the dilution in promoter holding, when the chances of takeover of the company are increasing.

4.When company wants to increse their market value

Buyback of shares is mostly done at a higher price than the currentmarket price of the stock in the stock market. Many times by buying their shares at a price higher than prevailing market price, company signals to the market that its share valuation should be higher.

due to above 4 main reasons the comapany can go for purchase of its own shares from shareholders who bought shares from that comapny........!!! :)

Sanket (!..Live to Give..!) (16427 Points)
Replied 21 November 2011

i. To increase promoters holding
ii. Increase earning per share
iii. Rationalise the capital structure by writing off capital not represented by available assets.
iv. Support share value
v. To thwart takeover bid
vi. To pay surplus cash not required by business
Infact the best strategy to maintain the share price in a bear run is to buy back the shares from the open market at a premium over the prevailing market price.