The buyback of shares by a private limited company in India is governed by the provisions of the Companies Act, 2013 and the rules made thereunder. The process involves several steps and compliance with specific legal requirements. Here is an overview of how a private limited company can buy back its own shares:
- Board Meeting: The company’s Board of Directors should first convene a meeting to discuss and approve the proposal of share buyback. The Board needs to decide on the number of shares to be bought back, the price, the method of buyback, and the source of funds for the buyback.
- Special Resolution & Board Resolution: Depending on the size and terms of the buyback, the company may need to pass a special resolution (approved by at least 75% of shareholders) or a board resolution. A special resolution is required if the buyback is more than 10% of the total paid-up equity capital and free reserves of the company.
- Filing with the Registrar of Companies (ROC): Once the resolution is passed, the company must file a notice of the resolution with the ROC within 30 days of passing the resolution.
- Opening of Escrow Account: The company should open an escrow account and deposit therein the total consideration of the buyback.
- Public Announcement: If the buyback is through a tender offer, the company must make a public announcement specifying detailed terms of the buyback. This is not required if the buyback is from the open market.
- Letter of Offer: A draft letter of offer should be prepared and filed with the Securities and Exchange Board of India (SEBI) and the ROC. This letter must be dispatched to the shareholders.
- Acceptance Period: The company should allow a minimum of 15 days and a maximum of 30 days for the shareholders to accept the offer.
- Verification: After the closure of the acceptance period, the company should complete the verification of the offers received within 15 days.
- Payment: The company should make payment for accepted offers and return the unaccepted shares within 7 days of the completion of the verification process.
- Extinguishing and Physically Destroying the Shares: The bought-back shares must be extinguished and physically destroyed within 7 days from the date of acceptance/payment.
- Compliance and Reporting: The company must comply with various reporting requirements, including filing a return with the ROC and SEBI (if applicable) detailing the shares bought back.
- Maintaining a Register of Buyback: The company is required to maintain a register of the shares bought back, containing relevant details.
Key Points to Note:
- The buyback cannot exceed 25% of the aggregate of paid-up capital and free reserves of the company.
- The debt-equity ratio post buyback should not be more than 2:1.
- The buyback should be completed within one year from the date of passing the special resolution or Board resolution.
- A company cannot make any further issue of the same kind of shares or other specified securities within six months except by way of bonus issue or in the discharge of subsisting obligations.
Legal Disclaimer: Given the legal complexities and the need for compliance with various regulations, it’s advisable for the company to seek guidance from legal and financial advisors to ensure that all procedures are correctly followed and legal requirements are met.
