Title 2. BUY BACK OF EQUITY SHARES.pdf ✅

CHAPTER 2 BUY BACK OF EQUITY SHARES
▪ When a company purchase its own equity shares, then it is called Buy Back of Equity shares. ▪ Buy back of equity shares by a company decrease its No. of equity shares and its equity share capital. ▪ Generally, The Buy back is made for the following objectives: ▪ For Increasing EPS because there is no reduction in present earning and No. of shares are get reduced. ▪ For Increasing promoters holding ▪ To discourage others to make hostile bid to take over the company as the buy- back will increase the promoters holding. ▪ To support the share price on the stock exchanges when the share price, in the opinion of company management, is less than its worth. ▪ To pay surplus cash to shareholders when the company does not need it for business. MEANING AND PURPOSE OF BUY BACK
▪ Buy back is made company as under: ▪ From the existing security holders on a proportionate basis through tenser offer OR ▪ From the open market OR ▪ By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity. HOW BUY BACK IS MADE As per section 68 of Companies Act 2013, Following conditions must be fulfilled for Buy back of equity shares: ▪ All the Equity shares for buy-back must be fully paid up ▪ The buy-back is authorized by its articles ▪ A special resolution has been passed in general meeting of the company authorizing the buy back Note: Special Resolution is required where the buy-back is ten percent or less of the paid-up equity capital + Free reserves. In this case, only Board Resolution is required. CONDITIONS FOR BUY BACK
▪ The notice of meeting at which special resolution is supposed to be passed must be accompanied by an explanatory statement stating: ▪ A full and complete disclosure of all material facts ▪ The necessity of the buy-back ▪ The class of security intended to be purchased under the buy-back ▪ The amount to be invested under the buy-back ▪ The time limit for completion of the buy-back. ▪ Buy back must be completed with in 12 Months from the date of special or board resolution. ▪ Company has to extinguish and physically destroy the securities so bought-back within seven days of the last date of completion of buy-back. ▪ After Buy back, company shall not make further issue of same kind of shares (Including Right Shares) within a period of next six months except: ▪ By way of bonus issue or ▪ In the discharge of subsisting obligations such as: ▪ Conversion of warrants ▪ Stock option scheme ▪ Sweat equity ▪ Conversion of preference shares or debentures into equity shares