Section 68 of the Companies Act, 2013 ("the Act") permits a company to buy back its own shares or other specified securities. The buy-back can be approved by the board by a resolution passed at a meeting, or by a special resolution of the members, depending on the size of the buy-back.
The Board Route
A company can buy back up to ten per cent of its paid-up equity capital and free reserves by a board resolution. The board resolution must be passed at a duly convened meeting of the directors, and the buy-back must be authorised by the articles of association. The board route is quicker and does not require a general meeting.
The Special Resolution Route
A company can buy back up to twenty-five per cent of its paid-up capital and free reserves by a special resolution. The special resolution must be passed at a general meeting, and the notice must contain the disclosures required by the rules. The special resolution route is used for larger buy-backs.
The Conditions
The buy-back must be completed within twelve months from the date of the special resolution or the board resolution. The company must comply with the debt-equity ratio of 2:1 after the buy-back, and it must extinguish and physically destroy the bought-back shares within seven days of the completion of the buy-back. The company must also file the return of buy-back in Form SH-11.
The Choice
The choice between the board route and the special resolution route depends on the size of the buy-back and the company's governance requirements. A buy-back that exceeds the ten per cent limit requires a special resolution, and a buy-back that is within the limit can be approved by the board.
Call to Action
Anuj Desai & Associates advises companies on the Section 68 buy-back—from the choice between the board and special resolution routes to the compliance with the debt-equity ratio and the extinguishment requirements. If you are planning a buy-back, we can help you structure it.
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