{"id":13780,"date":"2022-07-21T18:49:19","date_gmt":"2022-07-21T13:19:19","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=13780"},"modified":"2022-07-26T17:21:05","modified_gmt":"2022-07-26T11:51:05","slug":"what-is-buy-back-of-shares","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/","title":{"rendered":"What Is Buy Back Of Shares?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69d3119da2375\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69d3119da2375\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#Conditions_For_The_Buy_Back_Of_Shares\" title=\"Conditions For The Buy Back Of Shares\">Conditions For The Buy Back Of Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#Procedure_Of_Buy_Back_Of_Shares\" title=\"Procedure Of Buy Back Of Shares\">Procedure Of Buy Back Of Shares<\/a><ul class='ez-toc-list-level-5'><li class='ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#Open_Market_Route\" title=\"Open Market Route\">Open Market Route<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#The_Advantages_Of_Buy_Back\" title=\"The Advantages Of Buy Back:\">The Advantages Of Buy Back:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#Prohibition_On_Buy-Back_In_Certain_Circumstances\" title=\"Prohibition On Buy-Back In Certain Circumstances\">Prohibition On Buy-Back In Certain Circumstances<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#Why_Do_Companies_Buy_Back_Their_Shares\" title=\"Why Do Companies Buy Back Their Shares?\">Why Do Companies Buy Back Their Shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/#Interested_in_how_we_think_about_the_markets\" title=\"Interested in how we think about the markets?\">Interested in how we think about the markets?<\/a><\/li><\/ul><\/nav><\/div>\n<p><span style=\"font-weight: 400;\">Buy-Back of shares refers to the process by which a company repurchases its shares from existing shareholders, usually at a price higher than the market price. Buybacks increase the percentage of shares a firm holds by reducing the number of outstanding shares available in the market.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The buyback of shares is usually done either through the open market or through the tender offer route.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/kuvera.in\/explore\/fixed-deposit\/c\/all\"><img loading=\"lazy\" class=\"aligncenter wp-image-13417 size-large\" src=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg\" sizes=\"(max-width: 640px) 100vw, 640px\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg 1024w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-300x98.jpg 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-768x250.jpg 768w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022.jpg 1080w\" alt=\"Online Fixed Deposits on Kuvera\" width=\"640\" height=\"209\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Conditions_For_The_Buy_Back_Of_Shares\"><\/span>Conditions For The Buy Back Of Shares<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The following factors need to be taken into account by the company before it can conduct a buyback of shares:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Enabling Provisions<\/strong><span style=\"font-weight: 400;\"><strong>:<\/strong> The buyback of shares must be authorised by its Articles of Association (AoA). The Articles of Association are the internal constitution of a company that regulates the company&#8217;s internal administration.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Special Resolution<\/b><span style=\"font-weight: 400;\">: The buy-back must be authorised by a special resolution that must be passed at the general meeting. However, if the buy-back is up to 10% of the total paid-up equity capital and free reserves, the board of directors may authorise the company for such a buy-back by passing a resolution at its meeting (only one such buy-back can be done in a year).<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Buy Back Limit<\/b><span style=\"font-weight: 400;\">: 25% of the total paid-up equity capital + free reserves, and not more than 25% of the total paid-up<a href=\"https:\/\/kuvera.in\/explore\/mf\/c\/all\/equity\"> equity<\/a> in that financial year.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Debt-Equity Ratio<\/b><span style=\"font-weight: 400;\">: The debt-equity ratio should not fall below 2:1 after the buyback.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Type of Shares That Can Be Bought Back<\/b><span style=\"font-weight: 400;\">: The shares and the specified securities should be fully paid up.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Further, Buy Back<\/b><span style=\"font-weight: 400;\">: Only one buy-back in a year is allowed.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Extinguishment of Shares Bought Back<\/b><span style=\"font-weight: 400;\">: Within 7 days of the completion of the buy-back.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><b>Further Issue of Shares<\/b><span style=\"font-weight: 400;\">: No fresh issue is allowed within 6 months of the buy-back (exceptions are Employee Stock Ownership Plans (ESOPs), conversion of debt\/preference shares into equity, issue of bonus shares, and sweat equity).<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Procedure_Of_Buy_Back_Of_Shares\"><\/span>Procedure Of Buy Back Of Shares<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Authorisation by Articles of Association<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The first step is to establish that the company&#8217;s articles authorise the buy-back of share capital; if they don&#8217;t, the articles must be amended in accordance with the Companies Act to include such an authorisation.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>General meeting<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The proposal for a share buyback must also be approved by a special resolution passed at a duly convened general meeting if the proposed buyback is more than 10% of the company&#8217;s total paid-up equity capital and free reserves.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Submit form MGT-14 to the Registrar of Companies (ROC)<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Within 30 days of the Board Resolution\/Special Resolution being passed in the Board Meeting\/General Meeting, as applicable, submit Form MGT-14 to the ROC together with the necessary paperwork and fees as specified in the Companies (Registration Offices and Fees) Rules, 2014.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>File declaration of solvency<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Before undertaking any buybacks in accordance with the provisions outlined, the company must submit a Form SH-9 (statement of solvency) together with Form SH-8 (letter of offer).<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Letter of offer to the shareholders<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The letter of offer must be sent to shareholders after filing it with the Registrar of Companies(ROC). The offer for buy-back shall remain open for a period of ten working days.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Verification of the Offers<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Within 15 days after the offer closing date, the company must complete verification of the offers that were submitted.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Opening of a bank account<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">If all resolutions are approved and there are no objections, the corporation opens a separate bank account to deposit the consideration for the buyback.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Extinguishment of shares\/securities<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The consideration must be paid within seven days of verification, and the acquired shares must be destroyed within seven days of the buyback&#8217;s completion.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Filing of SH-11<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Within 30 days following the completion of the buy-back, the company must file form No. SH. 11 with the Registrar together with the requisite fee and documents.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Maintenance of the register<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The company must maintain a register of its shares and other specified securities which have been bought back in Form No. SH 10.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In addition to the procedures, the rules include the following restrictions for a buy-back:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The consideration for the buyback must only be paid in cash.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Once the offer letter has been submitted to the ROC, the company cannot withdraw the buyback.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Abstain from using money borrowed from banks or financial institutions to repurchase its shares.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company shall refrain from issuing any new shares, including bonus shares, until the closure date, except those arising out of any outstanding convertible instruments.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong>The Objectives Of Buyback<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A share buyback is generally used to improve the shareholding of the promoters of the company. There can be other purposes for the buyback of shares. A few of them are:\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Buybacks are advantageous for shareholders. The decrease in the number of shares causes an increase in\u00a0 Earnings Per Share (EPS).\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To improve return on capital, return on net worth, and increase long-term shareholder value.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To offer shareholders an extra exit strategy when shares are undervalued or thinly traded.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To increase stake consolidation in the company;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To deter hostile takeover offers;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Return cash surplus to shareholders;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To obtain the optimal financial capital structure;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To stabilise the share price during instances of sluggish market conditions.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong>Methods For The Buyback Of Shares<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A buyback may be done in the following manner:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From existing shareholders on a proportionate basis through a tender offer<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From open market<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From odd lot holders<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong>Tender Offer<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A tender offer refers to an offer by a company to buy back its own shares or other specified securities with a letter of offer from the holders of the shares or other specified securities of the company. In this method, shareholders are invited to sell their shares at a certain price and within a predetermined time frame. The offered price is typically higher than the market price.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The difference between the market price of the share and the offer price of the share is the premium paid to the shareholders. The purpose of offering the premium is to persuade many shareholders to sell their shares.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In addition to the aforementioned requirements, the following steps\/compliances must be met for a buyback using the Tender Method:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Approval by special resolution or board resolution.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Opening of an escrow account and deposit of funds prior to or at the time of the buyback;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">File the Draft Letter of Offer (DLOF), fees, and a Solvency Declaration with the Registrar of Companies (ROC) and Securities and Exchange Board of India (SEBI);<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">SEBI will provide comments on the Draft Offer Letter;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Distribution of Offer Letter to Shareholders<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Even if a qualified public shareholder does not receive the tender offer\/offer form, he may still participate in the buy-back offer and tender shares according to the Board&#8217;s guidelines.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A non-registered shareholder may also tender his shares for buy-back by providing the properly executed transfer deed for the transfer of shares in his name, the offer form, and any other required transfer documents.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The proposed buyback of shares must be divided into two categories:\u00a0<\/span><\/li>\n<\/ul>\n<ol>\n<li><span style=\"font-weight: 400;\">a category reserved for small shareholders<\/span><\/li>\n<li><span style=\"font-weight: 400;\">the general category for other shareholders<\/span><\/li>\n<li><span style=\"font-weight: 400;\">15% of the shares proposed for buyback will be reserved proportionally for small shareholders.<\/span><\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<h5><span class=\"ez-toc-section\" id=\"Open_Market_Route\"><\/span>Open Market Route<span class=\"ez-toc-section-end\"><\/span><\/h5>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Under this buyback method, the company purchases the shares directly from stock exchanges through an open offer. Under the stock exchange method\/ open market method, a company can only repurchase shares that are currently listed on stock exchanges via national trading terminals. The buyback is handled through bidding centres as part of the book-building process. The company shall appoint a merchant banker and advertise the appointment to the public.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The public announcement must be made within two business days of the date of the approval of the resolution by the Board of Directors or the date of the declaration of the results of the postal ballot for a special resolution. The buy-back offer must begin within seven working days of the public announcement date and must end within six months of that date.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The company should make sure that the offer letter, disclosure of the offer to the public, and any other advertisements, circulars, brochures, or promotional materials contain relevant, accurate, and true information. The directors of the company are responsible for the accuracy of the information contained in these materials.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The Open Market Offer differs from other buyback methods like the Tender Offer. In this case, the company buys shares from the open market rather than from investors.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"The_Advantages_Of_Buy_Back\"><\/span>The Advantages Of Buy Back:<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h4><\/h4>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It is an alternative method for reducing capital that does not require approval from the Court\/Company Law Board(CLB)\/National Company Law Tribunal (NCLT).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In order to increase Earnings Per Share (EPS).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To stop unwanted takeover bids.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Return cash surplus to shareholders.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Achieving the optimal capital structure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To serve the equity more efficiently.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Prohibition_On_Buy-Back_In_Certain_Circumstances\"><\/span>Prohibition On Buy-Back In Certain Circumstances<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A company is prohibited from buying its own shares or securities either directly or indirectly through a subsidiary company, investment company, or group of investment companies.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It is prohibited from buying its own shares or securities directly or indirectly if it has defaulted in repayment of the deposit or interest or redemption of debentures or preference shares or payment of dividend or repayment of a loan\/ interest payable to a bank\/ financial institution.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Why_Do_Companies_Buy_Back_Their_Shares\"><\/span>Why Do Companies Buy Back Their Shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Companies can consolidate their ownership through buybacks. In other words, buybacks are the solution for promoters who wish to increase their control of the company. This is especially true when businesses anticipate takeover threats.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Buybacks are great options for companies with surplus cash and few or no opportunities to use it elsewhere. Through a buyback, the company can use its free reserves and other permitted sources of funds to return money to investors. This act in turn boosts investors\u2019 confidence in the company.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The buyback strategy is used by the company&#8217;s management to rectify the stock price when they believe the stock is undervalued. Typically, the buyback is done at a price higher than the market price.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>FAQ\u2019s<\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Can a company buy back its shares without passing a shareholder\u2019s resolution?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Yes. A company may buy back shares up to 10% of its paid-up equity capital and reserves, as determined by both the standalone and consolidated financial statements of the company, without the approval of its shareholders. However, if a company intends to buy back more than 10% of its paid-up capital and free reserves, the buyback must be approved by shareholders through a special resolution under the provisions of the Companies Act.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>How does the company buy back its own shares?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A buyback may be done in the following manner:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From existing shareholders on a proportionate basis through a tender offer.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From open market.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From odd lot holders.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>What are the important points to consider before participating in a buyback?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Buyback participation is voluntary.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Only shareholders holding shares as of the record date are eligible to tender their shares for buyback consideration.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Examine the disclosures made by the company in the public announcement.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Understand the number of shares, quantum, the objective of the buyback, and the maximum buyback price.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>If you are not a registered shareholder, can you tender your shares for a buyback?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Yes, if you submit the properly executed transfer deed for the transfer of shares in your name along with the offer form and any other requisite paperwork. The registrar should get the same along with the buyback offer.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Should investors accept a share buyback offer?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Investors must analyse the price movement of the shares just before the buyback is announced. Individual investors must consider the size of the offer, price, and duration of a buyback offer. They must also consider the debt-to-equity ratio to understand the company&#8217;s fundamentals.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">For some shareholders, the buyback offer is beneficial because, usually, the company concerned buys back its shares at an attractive premium (increased value) in an effort to attract more stakeholders.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">For instance, let&#8217;s assume a company&#8217;s stock is currently worth Rs. 500 per share. The company may provide a price of Rs 530-550 or perhaps more in the event of a buyback. This premium will entice investors to return their shares to the company.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>What is the primary difference between dividends and buybacks of shares?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The two ways that companies pay their shareholders when they have surplus funds are through the buyback of shares and dividend payouts. Dividends are returns distributed to shareholders from the company&#8217;s profits or earnings. In a buyback process, a company buys back the shares it has issued to its stockholders.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>How to participate in the buyback of shares?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A person&#8217;s eligibility to take part in the buyback process is determined by two factors:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Whether the individual is already a shareholder;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Whether the shares are in physical or Demat form.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">To be eligible to participate in the tender offer buyback, an individual must be an existing shareholder as of the record date of the buyback offer. In the case of an open market offer, any shareholder holding company shares during the buyback period is eligible to participate in the buyback.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The shares in the tender offer can either be in physical or Demat form. While only Demat shareholders can typically participate in a buyback offer, in the case of an open market offer.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Interested_in_how_we_think_about_the_markets\"><\/span>Interested in how we think about the markets?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Read more:\u00a0<a href=\"https:\/\/kuvera.in\/blog\/category\/zen-and-the-art-of-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Zen And The Art Of Investing<\/strong><\/a><\/p>\n<p>Watch\/hear on YouTube:<\/p>\n<p>&nbsp;<\/p>\n<p><iframe loading=\"lazy\" title=\"EPF, PPF and VPF | Tax Saving Investments for Guaranteed Returns\" src=\"https:\/\/www.youtube.com\/embed\/dbxbBR7it10?list=PLDSzQdT9nLmBFD2p94O5p2pZ4vEUR-Thz\" width=\"640\" height=\"360\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p>&nbsp;<\/p>\n<p>Start investing through a platform that brings goal planning and investing to your fingertips. Visit\u00a0<a href=\"https:\/\/app.kuvera.in\/\">Kuvera.in<\/a>\u00a0to discover\u00a0<a href=\"https:\/\/kuvera.in\/blog\/direct-plans-better\/\">Direct Plans<\/a>\u00a0and\u00a0<a href=\"https:\/\/app.kuvera.in\/explore\/fixed-deposit\/c\/all\">Fixed Deposits<\/a>\u00a0and\u00a0<a href=\"https:\/\/kuvera.in\/user\/login\">start investing today.<\/a><\/p>\n<p>#MutualFundSahiHai #KuveraSabseSahiHai!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Buy-Back of shares refers to the process by which a company repurchases its shares from existing shareholders, usually at a price higher than the market price. Buybacks increase the percentage of shares a firm holds by reducing the number of outstanding shares available in the market. &nbsp; The buyback of shares is usually done either [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":11,"featured_media":13782,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[99,679],"tags":[1209,1211,1210],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is Buy Back Of Shares? - Kuvera<\/title>\n<meta name=\"description\" content=\"Buybacks increase the percentage of shares a firm holds by reducing the number of outstanding shares available in the market.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/kuvera.in\/blog\/what-is-buy-back-of-shares\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Is Buy Back Of Shares? 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