1. Legal Framework and Permissibility

• Share buyback is governed by Section 68 of the Companies Act, 2013, and, for listed companies, by the SEBI (Buy-Back of Securities) Regulations, 2018.
  
• A Public Limited Company can buy back its shares from:
  
  • Existing shareholders on a proportionate basis (tender offer)
    
  • Open market through book-building or stock exchange
    
  • Employees under stock option schemes
    
• The buyback must be authorized by the Articles of Association (AoA). If not, it must be amended before initiating the process.
  

2. Sources of Buyback Funds

• Buyback can be made out of:
  
  • Free reserves (retained earnings)
    
  • Securities premium account
    
  • Proceeds of earlier issues (except fresh equity)
    
• The company must not use borrowed funds or equity raised specifically for the buyback.
  

3. Approval Requirements

• Board Resolution: Required if the buyback is up to 10% of total paid-up equity capital and free reserves.
  
• Special Resolution (Shareholder Approval): Required if the buyback exceeds 10% but is within 25% of the paid-up equity capital and free reserves.
  
• The buyback limit is capped at 25% of paid-up equity capital in a financial year.
  
• The debt-to-equity ratio post-buyback must not exceed 2:1, unless a higher ratio is permitted for specific classes.
  

4. Filing and Procedural Steps

• The company must file:
  
  • Form MGT-14 for special resolution (if applicable)
    
  • Form SH-8 (declaration of solvency) verified by two directors
    
  • Form SH-9 (buyback register)
    
  • Form SH-11 (return of buyback) within 30 days of completion.
    
• Listed companies must also file disclosures with SEBI and stock exchanges, publish public announcements, and submit post-buyback reports.
  

5. Execution and Post-Buyback Compliance

• Buyback must be completed within 1 year from the date of resolution.
  
• Bought-back shares must be extinguished and physically destroyed within 7 days of completion.
  
• The company cannot issue the same kind of shares for the next 6 months, except for bonus shares or stock options.
  
• All changes must be reflected in the Register of Members and capital structure filings.
  
• For listed entities, compliance with SEBI disclosure timelines and stock exchange notices is mandatory.