Buyback of Shares in Public Limited Companies

Introduction
Buyback of shares is a corporate financial strategy wherein a company repurchases its own shares from existing shareholders. In Public Limited Companies, buybacks are used as a means to return surplus cash to shareholders, improve financial ratios, and consolidate ownership. Governed by the Companies Act, 2013 and SEBI (Buy-Back of Securities) Regulations, 2018 for listed companies, the buyback process is subject to strict legal and procedural safeguards. This article explores the meaning, purpose, and process of share buyback in Public Limited Companies.

Meaning of Buyback of Shares
Buyback of shares refers to the repurchase of a company’s own outstanding shares from its shareholders, which results in a reduction of the share capital. It is carried out at a price determined by the company and can be executed from the open market, through tender offers, or by buying from odd-lot holders.

Objectives of Share Buyback
Public Limited Companies undertake share buybacks for various reasons:

• To return surplus cash to shareholders
  
• To enhance earnings per share (EPS) and return on equity (ROE)
  
• To support the share price during market fluctuations
  
• To prevent hostile takeovers by reducing free float
  
• To improve capital structure by reducing equity base
  

Legal Provisions under Companies Act, 2013
Section 68 of the Companies Act, 2013 allows a company to buy back its shares or specified securities from:

• Free reserves
  
• Securities premium account
  
• Proceeds of a previous issue (excluding proceeds from the same kind of shares)
  

A special resolution must be passed at a general meeting if the buyback exceeds 10% of paid-up capital and free reserves. For lesser amounts, board approval is sufficient.

Limits and Conditions for Buyback
A Public Limited Company must adhere to the following conditions:

• Buyback cannot exceed 25% of the total paid-up equity capital in a financial year
  
• Debt-equity ratio after buyback should not exceed 2:1
  
• All shares bought back must be fully paid-up
  
• No fresh issue of similar securities can be made within 6 months, except by bonus or conversion
  
• A cooling-off period is mandated before a new buyback is initiated
  

Modes of Buyback
There are three main methods for buyback in Public Limited Companies:

1. Tender Offer: Shares are bought back from existing shareholders on a proportionate basis at a fixed price.
   
2. Open Market Purchase: Shares are bought from the secondary market through stock exchanges over a period.
   
3. Odd-Lot Holders: Shares are bought from small shareholders who hold odd lots.
   

Listed companies must comply with SEBI regulations when using the open market or tender route.

Filing and Reporting Requirements
Companies are required to file several forms with the Registrar of Companies (RoC), such as:

• Form SH-8 (letter of offer)
  
• Form SH-9 (declaration of solvency)
  
• Form SH-11 (return of buyback)
  

Listed companies must also inform stock exchanges, provide public disclosures, and appoint a merchant banker to oversee the process.

Extinguishment and Capital Reduction
All shares bought back must be extinguished and physically destroyed within seven days from the completion of the buyback process. The company’s capital is reduced accordingly, and the changes must be reflected in the financial statements.

Conclusion
Buyback of shares is a strategic financial decision that allows Public Limited Companies to manage their capital structure, reward shareholders, and enhance shareholder value. When executed within the legal framework, it serves as a tool to strengthen investor confidence, stabilize share prices, and reflect a company’s strong financial position. Adhering to statutory guidelines ensures that buybacks are conducted fairly, transparently, and in the best interest of all stakeholders.

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