2.Buyback of Shares
Content
ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
Buyback of Shares
Buyback of Shares:
Buyback of shares means that any company may purchase their own shares or other specified securities. According to section 77A(1) of the companies Act 1999, a company may purchase its own shares or other securities out of: (i) Its free reserves or (ii) The securities premium account or (iii) The proceeds of any shares or other specified securities. Specified securities include employees stock option or other securities as may be notified by the Central Government from time to time. Buyback of shares of any kind is not allowed out of fresh issue of shares of the same kind. In other words, if equity shares are to be bought back, preference shares or debentures may be issued for buyback of equity shares. Companies are allowed to buyback their own shares if they fulfil certain conditions as given in section 77A (2) of the companies Act 1999. No company shall purchase its own shares or other specified securities unless: (a) The buyback is authorised by its articles. (b) A Special resolution has been passed in general meeting of the company authorising the buyback. (c) The buyback is for less than 25% of the total paid up capital and free reserves of the company. (d) It also provide that buyback shall not be exceed 25% of total paid up capital. (e) The debt equity ratio should not be more than 2:1 after such buyback. (f) All the shares or other specified securities for buyback are fully paid up. (g) The buyback of the shares or other specified securities listed on any recognised stock exchange is in accordance with the regulations made by the Securities and Exchange Board of india in this behalf. (h) The buyback in respect of shares or other specified securities other those specified in clause (i) The buyback should be completed within 12 months from the date of passing the special resolution.
SEBI guidelines:
The following are the important points: 1. Buyback of shares cannot be from any person through negotiated deals whether on or after stock exchange or through spot transactions or through private management. Therefore a company is required to make public announcement in atleast one National Daily all with wide circulation where registered office of the company is situated. 2. Public announcement among other things specify the following: (j) Specified date i.e the date of the dispatch of the offer letter shall not be less than earlier than 30 days but not later than 42 days. (k) SEBI shall be informed by the company with in seven working days from the date of public announcement. (l) The offer for buyback shall remain open to the members for a period of not less than 15 days but not exceeding 30 days. However the opening date for the offer shall not be earlier than 7 days or later than 30 days from the specified date. (m) The company shall complete the verification of offers within 15 days from the date of closure and shares lodged shall be deemed to have been accepted unless communication of rejection is made within 15 days from the date of closure. The following entries are required in the Buyback of Shares:
SCO: 209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
1. Entry for Assets sold for Buyback: Bank A/c Dr. Profit & Loss A/c Dr. (In Case of Loss) To Assets A/c To Capital Reserve A/c (In case of Profit) 2. Entry for issue of debentures or other securities for the purpose of buyback Bank A/c Dr. Discount on issue Dr. To Debentures A/c To Other securities A/c To Security Premium A/c 3. Entry for the cancellation of shares bought back : Equity Share Capital A/c Dr. Free Reserves or Securities Premium A/c Dr. To Shareholders A/c 4. Entry for transfer of nominal value of shares bought back to CRR General Reserves A/c Dr. Or Profit & Loss A/c Dr. Or Any other reserve A/c Dr. To Capital Redemption Reserve 5. Entry for making the payment of buyback shares : Shareholders A/c Dr. To Bank A/c 6. Entry for expenses incurred in buyback of shares: Buyback Expenses A/c Dr. To Bank A/c 7. Entry for transfer of buyback of expenses to P & L A/c Profit & Loss A/c Dr. Expenses A/c Advantages of Buy Back of Shares: 1. The buy back facility enable the co.’s is manage their cash effectively. Many co.’s in this country are faced with a problem of surplus cash without having any idea of where to invest them. It would be better for them to return surplus cash to shareholder’s rather than to go on spending simply for want to alternative. 2. Companies having large amount of free reserves are free is use funds to acquire shares and other specified securities under the buyback process. 3. Buyback shares in helpful co. to reduce its share capital. 4. Buyback of shares is helpful to improvement in the values of shares. 5. Avoid high financial risk and ensure maximum return to the shareholders. 6. Buyback of shares helps the promoters to formulate an effective defences strategy against hostile take over bids. Disadvantages of buy back of shares: 1. All the control of buy back of shares in the hands of promoters, so results of co.’s which the position of minority shareholders in weak. 2. The promoters before the buy back, may understand the earnings by manipulating accounting policies and highlight other unfavourable factors affecting the earnings. 3. High buy back of share may lead to artificial manipulation of stock prices in the stock exchange. Confusion is much more.
SCO: 209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
Buyback of Shares
Buyback of Shares:
Buyback of shares means that any company may purchase their own shares or other specified securities. According to section 77A(1) of the companies Act 1999, a company may purchase its own shares or other securities out of: (i) Its free reserves or (ii) The securities premium account or (iii) The proceeds of any shares or other specified securities. Specified securities include employees stock option or other securities as may be notified by the Central Government from time to time. Buyback of shares of any kind is not allowed out of fresh issue of shares of the same kind. In other words, if equity shares are to be bought back, preference shares or debentures may be issued for buyback of equity shares. Companies are allowed to buyback their own shares if they fulfil certain conditions as given in section 77A (2) of the companies Act 1999. No company shall purchase its own shares or other specified securities unless: (a) The buyback is authorised by its articles. (b) A Special resolution has been passed in general meeting of the company authorising the buyback. (c) The buyback is for less than 25% of the total paid up capital and free reserves of the company. (d) It also provide that buyback shall not be exceed 25% of total paid up capital. (e) The debt equity ratio should not be more than 2:1 after such buyback. (f) All the shares or other specified securities for buyback are fully paid up. (g) The buyback of the shares or other specified securities listed on any recognised stock exchange is in accordance with the regulations made by the Securities and Exchange Board of india in this behalf. (h) The buyback in respect of shares or other specified securities other those specified in clause (i) The buyback should be completed within 12 months from the date of passing the special resolution.
SEBI guidelines:
The following are the important points: 1. Buyback of shares cannot be from any person through negotiated deals whether on or after stock exchange or through spot transactions or through private management. Therefore a company is required to make public announcement in atleast one National Daily all with wide circulation where registered office of the company is situated. 2. Public announcement among other things specify the following: (j) Specified date i.e the date of the dispatch of the offer letter shall not be less than earlier than 30 days but not later than 42 days. (k) SEBI shall be informed by the company with in seven working days from the date of public announcement. (l) The offer for buyback shall remain open to the members for a period of not less than 15 days but not exceeding 30 days. However the opening date for the offer shall not be earlier than 7 days or later than 30 days from the specified date. (m) The company shall complete the verification of offers within 15 days from the date of closure and shares lodged shall be deemed to have been accepted unless communication of rejection is made within 15 days from the date of closure. The following entries are required in the Buyback of Shares:
SCO: 209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
1. Entry for Assets sold for Buyback: Bank A/c Dr. Profit & Loss A/c Dr. (In Case of Loss) To Assets A/c To Capital Reserve A/c (In case of Profit) 2. Entry for issue of debentures or other securities for the purpose of buyback Bank A/c Dr. Discount on issue Dr. To Debentures A/c To Other securities A/c To Security Premium A/c 3. Entry for the cancellation of shares bought back : Equity Share Capital A/c Dr. Free Reserves or Securities Premium A/c Dr. To Shareholders A/c 4. Entry for transfer of nominal value of shares bought back to CRR General Reserves A/c Dr. Or Profit & Loss A/c Dr. Or Any other reserve A/c Dr. To Capital Redemption Reserve 5. Entry for making the payment of buyback shares : Shareholders A/c Dr. To Bank A/c 6. Entry for expenses incurred in buyback of shares: Buyback Expenses A/c Dr. To Bank A/c 7. Entry for transfer of buyback of expenses to P & L A/c Profit & Loss A/c Dr. Expenses A/c Advantages of Buy Back of Shares: 1. The buy back facility enable the co.’s is manage their cash effectively. Many co.’s in this country are faced with a problem of surplus cash without having any idea of where to invest them. It would be better for them to return surplus cash to shareholder’s rather than to go on spending simply for want to alternative. 2. Companies having large amount of free reserves are free is use funds to acquire shares and other specified securities under the buyback process. 3. Buyback shares in helpful co. to reduce its share capital. 4. Buyback of shares is helpful to improvement in the values of shares. 5. Avoid high financial risk and ensure maximum return to the shareholders. 6. Buyback of shares helps the promoters to formulate an effective defences strategy against hostile take over bids. Disadvantages of buy back of shares: 1. All the control of buy back of shares in the hands of promoters, so results of co.’s which the position of minority shareholders in weak. 2. The promoters before the buy back, may understand the earnings by manipulating accounting policies and highlight other unfavourable factors affecting the earnings. 3. High buy back of share may lead to artificial manipulation of stock prices in the stock exchange. Confusion is much more.
SCO: 209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
