Buyback of securities refers to the process in which a company repurchases its own shares or other securities from its existing shareholders. The buyback can be made through various means, including tender offers, open market purchases, or directly from the shareholders. The buyback of securities in India is governed by the Companies Act, 2013, and specific rules and guidelines issued by the Securities and Exchange Board of India (SEBI).
Approval of Shareholders: The decision to conduct a buyback of securities must be approved by the shareholders through a special resolution passed in a general meeting.
Sources of Funds: The funds for the buyback must be sourced from the company’s free reserves, securities premium account, or the proceeds of a fresh issue of shares.
Maximum Limit: The buyback size should not exceed 25% of the total paid-up capital and free reserves of the company, as per the latest audited financial statements.
1- Tender Offer: Companies can conduct a buyback through a tender offer, where shareholders are invited to tender their shares at a specified price and within a specified period.
2- Open Market Purchase: Buyback can also be done through open market purchases on stock exchanges within the specified limits.
3- Completion Period: The entire buyback process, including the extinguishment of shares and payment to shareholders, must be completed within a specified period from the date of passing the special resolution.
4- Buyback of Securities and FEMA: From the perspective of the Foreign Exchange Management Act (FEMA), companies conducting a buyback of securities should comply with the following:
Reporting Requirements:Companies involved in buyback of securities need to report the transaction to the Reserve Bank of India (RBI) through the authorized dealer (bank) within the prescribed timeline.
Compliance with FEMA Regulations: The buyback process should be in compliance with FEMA regulations, including pricing guidelines, repatriation of funds, and reporting requirements.
Foreign Shareholders: Companies conducting a buyback with non-resident shareholders must ensure that the repurchase of shares is done in compliance with FEMA regulations concerning foreign investments and repatriation of sale proceeds.
Buyback of securities is a mechanism used by companies to return surplus capital to shareholders and improve their financial structure. The buyback process must comply with the regulations under the Companies Act and SEBI guidelines. Companies should also ensure adherence to FEMA regulations when dealing with non-resident shareholders and foreign exchange transactions. Seeking professional advice and guidance will help companies navigate the complexities of buyback of securities and ensure compliance with all relevant laws and regulations.
