Procedural Checklist for Buying Back shares of an unlisted company

A. INTRODUCTION:
Buy Back of securities simply implies purchase of its own securities by a Company.

B. PROVISION RELATED TO BUYBACK:

(a) Section 68, 69, 70 of Companies Act 2013
(b) Rule 17 of The Companies (Share Capital and Debenture) Rules 2014

C. SOURCES OF BUY-BACK:

Section 68 (1) of the Act provides that buy-back of shares can be financed only out of,—

 its free reserves;

 the securities premium account; or
 the proceeds of the issue of any shares or other specified securities:

It is provided that no Buy-back of any kind of shares or other specified securities can be

made out of the proceeds of an earlier issue of the same kind of shares or other specified

securities as it will frustrate the purpose sought to be achieved by an issue and will make

no sense. It can however be used for buy-back of another kind of security.

D. Conditions for a Buy-Back

Section 68 (2) of the Companies Act provides that a company can buy-back its shares or other specified
securities only when-
 The buy-back is authorised by its articles;
 A special resolution has been passed at a general meeting of the company authorising the buy-back:
 The buy-back is10% or less of the total paid-up equity capital and free reserves of the company and
such buy-back has been authorised by the Board by means of a resolution passed at Board meeting;
 The overall limit of buy-back is 25% or less of the aggregate of paid-up capital and free reserves of the
company. In respect of the buy-back of Equity shares in any financial year, the reference to 25% in this
clause shall be construed with respect to its total paid-up equity capital in that financial year;
 The buy-back debt-equity ratio is within the permissible 2:1 range.
 The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not
more than twice the paid-up capital and its free reserves.
 The Central Government is empowered to relax the debt-equity ratio in respect of a class or classes of
companies but not in respect of any particular company.
 All the shares or other specified securities for buy-back are fully paid-up.
 The buy-back of the shares or other specified securities listed on any recognized stock exchange is in
accordance with the regulations made by the Securities and Exchange Board in this behalf.
 Every buy-back is required to be completed within 12 months from the date of passing the Special
Resolution or the Board Resolution, as the case may be.
 No offer of buy-back under this sub-section 68 (2) shall be made within a period of 1 year reckoned from
the date of the closure of the preceding offer of buy-back.
 According to Section 68 (3) the notice containing the special resolution should be passed and should be
accompanied by an explanatory statement stating:
o All material facts, fully and completely disclosed:
o The necessity for buy-back;
o The class of security intended to be purchased by the buy-back
o The amount to be invested under buy-back;
 o The time limit for completion of buy-back.

The company is also required to pass a special resolution in its general meeting after following the
procedure laid down in section 101& 102.

E. Time Limit of completion of buy-back:

Section 68 (4) provides that every buy-back is required to be completed within 1year from the date of passing the
special resolution or the Board resolution, as the case may be.

F. Modes of Buy-Back:
Section 68 (5) states that the securities can be bought back from:
 From the existing shareholders or security holders on a proportionate basis;
 From the open market;
 By purchasing the securities issued to employees of the company pursuant to a scheme of stock option
or sweat equity.

G. Other Formalities for Buy-back:

 The company which has been authorized by a special resolution shall, before the buy-back of shares,
file with the Registrar of Companies a letter of offer in Form No. SH-8, along with the fee.Provided that
such letter of offer shall be dated and signed on behalf of the Board of directors of the company by not
less than two directors of the company, one of whom shall be the managing director, where there is one.
[Rule 17 (2)]
 Under Section 68 (6) provides a Declaration of Solvency is required to be filed by the company with the
Registrar in the prescribed Form SH-9signed by at least two directors of the company, one of whom
shall be the managing director, if any, and verified by an affidavit before the buy-back is implemented to
guarantee its solvency for at least a year after the completion of buy-back.

CHECKLIST FOR BUY-BACK AS PER COMPANIES ACT, 2013

1. The Articles of association authorize buy back of securities. If not, a

special resolution for amending the articles of association under section
14 of Companies Act 2013 has been passed by the company in general
meeting.

2. Form No. MGT – 14 as per Companies (Management and Administration)

Rules, 2014 is to be filed with ROC within 30 days of passing the special
resolution.

3. In case, buy back of securities are up to 10% of total paid up equity

capital and free reserves, where a board resolution was passed
authorizing the buy-back.

4. A special resolution has been passed in general meeting authorizing the

board to buy back

(Note – This is not applicable in case the buy back is ten percent or less of
paid up capital and free reserves of the company)

5. The explanatory statement is required to be annexed to the notice of

general meeting, pursuant to section 102 contains the disclosures
mentioned in rule 17(1) of companies (share capital and debentures) rules
2014 in this behalf
6. After passing of special resolution but before buy back, the letter of
offer has been filed with ROC in Form No. SH – 8 with the required fee.

7. The letter of offer has been dated and signed on behalf of the board by
not less than two directors of the company, one of whom shall be the
managing director, where there is one.

8. The shares or other securities so bought back are extinguished and

physically destroyed within seven days of the completion of buy back.

9. The declaration of solvency required pursuant to section 68(6) of the

companies Act 2013 has been filed in Form No. SH – 9 as per Companies
(share capital and debentures) Rules 2014

10. The declaration of solvency has been signed and verified by at least
two directors, one of whom shall be the managing director of the
company, if any.

11. The company maintains a register of shares or other securities which

have been bought back in Form No. SH – 10 as per Companies (share
capital and debentures) Rules 2014

12. The company has filed a return within 30 days of completion of buy
back in form no. SH – 11 as per Companies (share capital and debentures)
Rules 2014 with ROC and in case of listed company with SEBI

13. The Certificate of compliance in Form No. SH 15 signed by two

directors of the company including the managing director, if any, and
verified by company secretary in practice is annexed to return filed with
ROC in Form No. SH – 11

14. The company has not issued shares of the same kind within a period
of 6 Months except by way of bonus issue or discharge of subsisting
obligation.

Indicative list of documents required

· Articles of Association

· Minutes of Board meeting

· Minutes of General meeting

· Notice authorizing buy back along with Explanatory Statement

· Letter of offer (SH – 8)

· Declaration of Solvency (SH-9)

· Register of shares/other securities bought back (SH-10)

· Return of Buy back (SH – 11)

· Certificate of Compliance (SH-15)

· MGT – 14 (For Special Resolution)

- Valuation Certificate

- Statement of Assets and Liabilities as on 31.03.2016

- Affidavit by the Directors of the Company

TIME SCHEDULE SUMMARIZED:

PROCEDURE DATE
Obtaining:
 Auditors Report stating maximum amount
permissible for buy back
 Then holding Board Meeting for considering
proposal of buy back, getting resolution
passed and determine price for such buy
back.
Issue of notice with Explanatory Statement (along
with disclosures mentioned below) to all members.
Holding AGM and passing special resolution, if
required.
Holding Board Meeting for obtaining Board of
Directors Affidavit regarding Solvency of company
for one year.
 Filing of Form MGT-14 for Special Resolution
passed at the General Meeting
 Filing draft letter of Offer with the ROC along
with declaration of Solvency and e-form SH9
Maximum time for dispatch of letter of offer to all
members
Opening of the Offer period *
Closing of the Offer period
Verification of offer to be completed. Within 15 days
from the closure
of offer
Open a Special Bank Account with Schedule Bank. Immediately on
Closure of offer
Making payment in cash to those shareholders Within 7 days
whose offer has been accepted or return the share from completion
certificates to the shareholders forthwith of Verification
Extinguish and physically destroy the share Within 7 days
certificates of shares bought back from completion
of Acceptance
File requisite return in e-form SH 11 with MCA21 and After completion
a declaration signed by 2 directors, one of whom of buy back
 shall be Managing Director, if any in e-form SH 15

* As per MCA Notification dated 29th March, 2016, the buy-back

offer may remain open for a period less than fifteen days
provided all the Members of the Company agree.