29 Feb Share Repurchase: A Comprehensive Guide
Share repurchase, also referred to as buyback, stands as a pivotal corporate financial strategy that instigates corporate restructuring while concurrently enhancing Earnings per Share (EPS). This strategic maneuver is governed by Section 68 of the Companies Act, 2013, which empowers a company to acquire its own shares or other securities, contributing to the optimization of its capital structure.
Sources of Share Repurchase:
- Utilization of free reserves
- Securities premium account
- Proceeds from the issuance of shares or other specified securities
Modes of Share Repurchase:
- Acquisition from existing shareholders or security holders on a proportionate basis
- Procurement from the open market
- Purchase of securities allotted to employees under schemes such as stock options or sweat equity
Conditions for Share Repurchase:
- The Articles of Association (AOA) of the Company must authorize the repurchase of shares or other specified securities.
- All repurchased shares or securities must be fully paid up.
- A special resolution must be passed at a general meeting of the company, outlining comprehensive details related to the buyback.
- Each share repurchase endeavor must be concluded within one year from the date of passing the special resolution or board resolution, as applicable.
- The aggregate of paid-up share capital and free reserves of the company should not be exceeded by the share repurchase (not exceeding 25% for equity shares).
Procedure for Share Repurchase:
- A minimum of 21 days' notice must be provided to all shareholders for the passage of the special resolution.
- Within 30 days of passing the special resolution, Form MGT-14 must be filed with the Registrar of Companies.
- Subsequent to passing the special resolution but before commencing the share repurchase, Form SH-8 must be filed with the Registrar of Companies, signed by two directors of the company, with at least one being a managing director if applicable.
- Declaration of solvency in Form SH-9 must be filed with both the Registrar of Companies and SEBI, particularly for listed companies.
- A letter of offer must be disseminated to all shareholders and other security holders no later than 20 days from the filing with the Registrar of Companies.
- The offer period must span a minimum of 15 days but should not exceed 30 days from the dispatch date of the letter of offer.
Post Share Repurchase Obligations:
- Form SH-11 must be filed with both the Registrar of Companies and SEBI within 30 days of the completion of the share repurchase.
- Within 7 days from the final completion date of the share repurchase, all repurchased shares and specified securities must be physically destroyed.
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