Under Section 68 of the Companies Act, 2013, read with Section 77A of the Companies Act, 1956, signifies that any company limited by shares or company limited by guarantee having a share capital can buy its own securities, whether it is a public company, private company or an unlisted company.
A stock buyback, also known as a share repurchase, occurs when a company buys back its shares from the marketplace with its accumulated cash. A stock buyback is a way for a company to re-invest in itself. The repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced.
There are a number of reasons a company might consider repurchasing its shares, including: returning capital to shareholders in a more tax-efficient manner than declaring dividends; … offsetting the dilutive impact of merger and acquisition activity and exercises of employee stock options; and.
Limits under Buy-back
Further, buy-back of equity shares by a company in any financial year cannot exceed 25% of its paid-up equity capital.
How much stake can company buyback at one go? In India, under Section 68 of Companies Act, 2013, which deals with buyback of shares- a company can buy its own shares subject to the condition that in a financial year, buyback of equity shares cannot exceed 25 percent of the total fully paid-up equity shares.
In a buyback, a company announces a plan to repurchase a certain number of its shares. … Companies cannot force shareholders to sell their shares in a buyback, but they usually offer a premium price to make it attractive.
A buyback will increase share prices. Stocks trade in part based upon supply and demand and a reduction in the number of outstanding shares often precipitates a price increase. Therefore, a company can bring about an increase in its stock value by creating a supply shock via a share repurchase.
Is Buyback Good for Investors?
Share buybacks are good when the company’s management perceives that their shares may have been undervalued. Share buybacks also instill confidence among investors as it is seen as boosting share value and is a good signal for shareholders.
Many times a company has excess cash on its balance sheet which it wants to distribute amongst its shareholders. A buyback is one of the modes by which it can achieve its objectives. … It is not necessary that preference shares must always be redeemed as they can also be the subject of a buy-back of shares.
The maximum limit of any buy-back shall be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company. W.r.t to the buy back of securities in a financial year, the reference of 25% shall be construed with the total paid-up equity capital for that financial year.
> Authorisation for Buy-back: AOA should authorise the Buy-back. > Approval for Buy-back: – Approval of Board of Directors: If the Buy-back is up to 10% of the Paid up capital and free reserve.