COMPLIANCE RELATING TO BUY BACK OF SHARES
INTRODUCTION OF TEAM MEMBERS
PRATIK SHAH(GROUP LEADER):WRO 0441853 & PRAKASH GONDALIYA :WRO 0276004
REASON FOR SELECTING THIS TOPIC
During the course of trading and commerce we have many a times come across the term Buy Back of Shares. Most of the common people are not very well acquainted with this term, so to give a concise and brief knowledge about the topic, we have chosen it.
One should know what Buy Back of Shares means and what are the compliances to be followed , so as to understand its financial impact on the company.
BUY BACK OF SHARES (Introduction)
Buy Back (or share repurchase) is the reacquisition by a company of its own stock .A corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares [Link] company either retires the repurchased shares or keeps them as treasury stocks, available for re-issuance.
OBJECTIVES..
To increase promoters holding Increase earning per share
Rationalize the capital structure by writing off capital not represented by available assets. Support share value
.
To pay surplus cash not required by business Tax advantages Flexibility Increasing financial leverage
SECTIONS
The provisions regulating buy back of shares are contained in section 77A, 77AA and 77B of The Companies Act,1956. These were inserted by The Companies (Amendment) act,1999. The Securities and exchange board of India (SEBI) framed The SEBI(buy back of securities) Regulations,1999 and The department of company Affairs framed the rules for Private limited company and Unlisted Public company.
RESOURCES OF BUY BACK
Free reserves Securities premium account Proceeds of any shares or other specified securities
CONDITIONS OF BUY BACK
Articles of Association Special resolution has to be passed in the general meeting Buy-back cannot be of more than twenty-five percent of the total paid-up capital and fee reserves Ratio of the debt owed by the company is not more than twice the capital and its free reserves
Default in any of the following i. Repayment of deposit ii. Redemption of debentures, or preference shares iii. Payment of dividend iv. Repayment of any term loan All the shares are fully paid-up
PROCEDURES
A Company can propose to buy back its shares, after passing of the Special/Board resolution. It has to make a public announcement in at least one English National Daily, one Hindi National daily and One Regional Language Daily. A public notice shall be given containing disclosures as specified in Schedule I of the SEBI regulations. A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.
A copy of the Board resolution authorizing the buy back shall be filed with the SEBI and stock exchanges.
The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified date
The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days. A company opting for buy back through the public offer or tender offer shall open an escrow Account.
ISSUES OF FURTHER SHARES
Every buy-back shall be completed within twelve months from the date of passing the special resolution or Board resolution as the case may be. A company which has bought back any security cannot make any issue of the same kind of securities in any manner whether by way of public issue, rights issue up to six months from the date of completion of buy back. Company shall file with the Registrar a declaration of Solvency.
POSITIVE IMPACT
It could avert a hostile takeover bid by reducing number of shares in circulation Market generally interprets buy back as a positve aspect Shareholders have a choice of deciding whether or not to receive the payout by selling or holding their shares,unlike a dividend payout
NEGATIVE IMPACT
A return of funds by way of a share buy back is less certain than an annual dividend stream Possible mismanagement may arise if: o Too high a price is paid for repurchase of shares o Cash resources are eroded to the level that could lead to a risk of insolvency
PENALTY (u/s 621A )
If a company makes default in complying with the provisions or any officer of the company who is in default shall be punishable with:-
Imprisonment for a term which may extend to 2 years
or
With fine which may extend to Rs.50,000/- or with both
CONCLUSION
Buyback should be used as an opportunity to exit only when there is concern over a companys prospects or when the post buyback free float is expected to shrink considerably. In most of the cases, buyback do offer the lure of an immediate benefit-but you might be better off as a residual shareholder, and gain from a hike in the shares of assets and profits of the business.
BIBLIOGRAPHY.
[Link] [Link] [Link] [Link] /bbreg_p.pdf
ANY QUESTION????
