J. K. Rathi & Co., Company Secretaries

Buy Back of Shares

An Initial Public Offering (IPO) is the process by which a company offers its shares to the public for the first time, thereby transitioning from being a privately held company to a publicly traded one. It is a significant event for a company as it allows it to raise capital from public investors and provides an opportunity for early investors, founders, and employees to sell their shares.


Buy back of shares is a mechanism in which a company buys back its shares from the existing shareholders. Buy Back of equity shares is an imperative mode of capital restructuring. It is a corporate financial strategy which involves capital restructuring and is prevalent globally with the underlying objectives of increasing Earnings per Share, averting hostile takeovers, improving returns to the stakeholders and realigning the capital structure. It is an alternative way of Reduction of Capital.


  • To improve earnings per share;
  • To improve return on capital, return on net worth and to enhance the long-term shareholder value;
  • To provide an additional exit route to shareholders when shares are under valued or are thinly traded;
  • To enhance consolidation of stake in the company;
  • To prevent unwelcome takeover bids;
  • To return surplus cash to shareholders;
  • To achieve optimum capital structure;
  • To support share price during periods of sluggish market conditions;
  • To service the equity more efficiently.

Buy back is advantageous as it is an alternative mode of reduction in capital without requiring approval of the Court/ NCLT.


The buy-back may be done in the following manner:

  1. From the existing shareholders or security holders on a proportionate basis;
  2. From the open market; (for listed companies only)
  3. By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.


Buy back of shares is governed by Section 68 of the Companies Act, 2013 read with Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014. The procedure is as follows:

  1. The Company should be authorized by Articles of Association to Buy Back its own share.
  2. Maximum Limit for Buy back:Buyback should be 25% or less than its paid up share capital & free reserves (In case of Equity Shares – 25% of paid up equity share capital only). The Post Buy Back Debt Equity ratio should not exceed 2:1.
  3. Convening of Board meeting in compliance with Section 173 of the Companies Act, 2013 for the following matters[1]:
  4. Approval of Buy back of Shares
  5. Fix the time, date and venue of Extra Ordinary General Meeting
  • Approve the notice of Extra Ordinary General Meeting and authorise director or company secretary to issue notice of Extra Ordinary General Meeting.

In case of listed entity send an intimation to the Stock Exchange within 30 minutes of the conclusion of the Board Meeting. The time gap between two buy back should be one year.

  1. Send 21 day clear notice to all the shareholders, directors and auditors of the Company for the Extra Ordinary General Meeting. In case of listed Companies, the notice has to be placed on the website of the Company and a copy of the notice also to be intimated to the stock exchange where the securities of the Company are listed. Thereafter, Convene Extra Ordinary General Meeting for the following matters:
  2. Approval of Buy back of shares


  1. File Form MGT-14 should be filed with the Registrar along with fee within 30 days of passing the Special Resolution.

After the Special Resolution but before the buy-back of shares, company should file with the Registrar of Companies a letter of offer in Form No. SH-8.

  1. File with the Registrar and the Securities and Exchange Board (in case of listed companies), a declaration of solvency in Form SH-9, along with the letter of offer  and verified by an affidavit as specified in said form.
  2. Dispatch Letter of offer to the Shareholders or security holders within 20 days from its filing with Registrar of Companies.
  3. The offer for buy-back should remain open for a period for a maximum period of 30 days from the date of dispatch of the letter of offer[1]
  4. If buy back by the company is over subscribed then the total number of the shares to be bought back, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.
  5. The company should complete the verifications of the offers received within 15 days from the date of closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within 21 days from the date of closure of the offer.
  6. Convene Board Meeting after Closure of offer period for the following matter:
  7. Approve the Buy Back of shares


  1. The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, the total amount payable as consideration for the shares offered for buy back.
  2. Make payment to the shareholders or security holders whose securities have been bought back immediately.
  3. Where the company buy backs its own shares and other securities, it shall extinguish and physically destroy the shares and securities so bought back within 7 days of the last day of completion of buy back.
  4. Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board.
  5. The company shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10. This register shall be maintained at registered office of the company, at the custody of the secretary of the company or any other person authorized by the board in this behalf & entries in this register shall also be made by the secretary of the company or any other person authorized by the board in this behalf.
  6. After the completion of the buy-back, the Company should file with the Registrar and the Securities and Exchange Board (in case of listed companies) a return Form No. SH.11 within thirty days of such completion, as may be prescribed. There shall be annexed to the return filed with the Registrar in Form No. SH-11, a certificate in Form No. SH- 15 signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and rules.


As per Section 70 of the Companies Act, 2013, 

1) no company shall directly or indirectly purchase its own shares or other specified securities—

  1. a) through any subsidiary company including its own subsidiary companies;
  2. b) through any investment company or group of investment companies; or
  3. c) if any default, is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company:

However, the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

2) No company shall, directly or indirectly, purchase its own shares or other specified securities in case such company has not complied with the provisions of sections 92 Annual Return, 123 (Declaration of Dividend), 127 (punishment for failure to distribute dividend) and section 129 (Financial Statement).

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