Buyback of Shares – What is Buyback of Shares by a Company?

What is Buyback of Shares?

A company with substantial cash recourses may like to buy its own shares from the market mostly when the current rate of its shares in the market is much lower than the book value or what company perceives to be the true value is called as Buyback of Shares.  

The Company may Buyback its Shares 

  • From existing shareholders on proportionate basis through the tender: In this method, company makes an offer to the shareholder directly to buy a certain number of shares at a fixed price.
  • From open market: In this method companies fixes a price cap and under that price cap company could buy its shares at different price from different investors.
  • From odd lot
  • By purchasing the securities issued to employees of the company

A Company could buyback its share to extent of 10% of its paid up capital and reserves without   shareholders’ resolution whereas if company want to buyback its share to the extent of 25% of its paid up capital and reserves then it has to be approved by Shareholders Resolution. The maximum amount that can be utilized for the buy back purpose is 25% of the paid up capital and free reserves.

How to Get Details of the Companies Offering Buyback of Shares

  • Details of the companies proposing to buyback of their shares may be obtained from the stock exchanges.   
  • You could also get the details of the companies proposing to buyback of their shares from the website of SEBI under primary market page as; Companies filed the offer document or public announcement with the SEBI.

When a company completes buy back of its shares or securities, it can not further issue the same kind of securities within a period of six months except by the way of bonus issue or in the discharge of existing obligations such as conversion of preference shares or debentures into equity. Company has to destroy the so bought back securities within seven days of the last date of completion of buy back.