1) A buyback of shares refers to a company repurchasing its own outstanding shares from investors in order to reduce the number of shares available on the market. 2) Companies buy back shares to increase the value of remaining shares by reducing supply, or to prevent hostile takeovers by shareholders seeking control. 3) Legal regulations in India require companies to follow procedures such as board resolutions, public announcements, and time periods when conducting a share buyback.

1. BUYBACK OF SHARES

2. Buy Back ?
The repurchase of outstanding shares (repurchase) by a
company in order to reduce the number of shares on the
market. Companies will buyback shares either to increase the
value of shares still available (reducing supply), or to eliminate
any threats by shareholders who may be looking for a
controlling stake.
A buyback is a method for company to invest in itself since
they can't own themselves. Thus, buybacks reduce the number
of shares outstanding on the market which increases the
proportion of shares the company owns.

3. Legal aspect of share buy back In India
• The provisions regulating buy back of shares are contained in
Section 77A, 77AA and 77B of the Companies Act,1956.
• These were inserted by the Companies(Amendment) Act,1999.
• The Securities and Exchange Board of India (SEBI) framed
the SEBI (Buy Back of Securities) Regulations,1999 and the
Department of Company Affairs framed the Private Limited
Company and Unlisted Public company (Buy Back of
Securities) rules,1999 pursuant to Section 77A(2)(f) and (g)
respectively.

4. Objectives
• To increase promoters holding
• Increase earning per share
• Rationalize the capital structure by writing off capital not
represented by available assets.
• Support share value
• To thwart takeover bid
• To pay surplus cash not required by business
• In fact the best strategy to maintain the share price in a bear run
is to buy back the shares from the open market at a premium
over the prevailing market price.

5. Method of Buy back of the shares
 The securities can be bought back from
• existing security-holders on a proportionate basis; Buyback of
shares may be made by a tender offer through a letter of offer from
the holders of shares of the company or
• the open market through
– book building process;
– stock exchanges or
• odd lots, that is to say, where the lot of securities of a public
company, whose shares are listed on a recognized stock exchange,
is smaller than such marketable lot, as may be specified by the
stock exchange; or
• purchasing the securities issued to employees of the company
pursuant to a scheme of stock option or sweat equity.

6. Procedure
• Where a company proposes to buy back its shares, it shall, after
passing of the special/Board resolution make a public
announcement at least one English National Daily, one Hindi
National daily and Regional Language Daily at the place where the
registered office of the company is situated.
• The public announcement shall specify a date, which shall be
"specified date" for the purpose of determining the names of
shareholders to whom the letter of offer has to be sent.
• A public notice shall be given containing disclosures as specified in
Schedule I of the SEBI regulations.
• A draft letter of offer shall be filed with SEBI through a merchant
Banker. The letter of offer shall then be dispatched to the members
of the company.

7. continue…
• A copy of the Board resolution authorizing the buy back shall
be filed with the SEBI and stock exchanges.
• The date of opening of the offer shall not be earlier than seven
days or later than 30 days after the specified date
• The buy back offer shall remain open for a period of not less
than 15 days and not more than 30 days.
• A company opting for buy back through the public offer or
tender offer shall open an escrow Account.

8. Penalty
• If a company makes default in complying with the provisions
the company or any officer of the company who is in default
shall be punishable with imprisonment for a term which may
extend to two years, or with fine which may extend to fifty
thousand rupees, or with both. The offences are, of course
compoundable under Section 621A of the Companies
Act,1956.

9. Issue of further shares after Buy back
• Every buy-back shall be completed within twelve (12) months
from the date of passing the special resolution or Board
resolution as the case may be.
• A company which has bought back any security cannot make
any issue of the same kind of securities in any manner whether
by way of public issue, rights issue up to six(6) months from
the date of completion of buy back.

10. SHARE BUY-BACK: ADVANTAGES
 It could enable a company to achieve its desired capital structure
more quickly or facilitate a major restructuring.
 It could avert a hostile takeover bid by reducing the number of
shares in circulation
 Market generally interprets buy-back as a positive aspect
 Shareholders have a choice of deciding whether or not to receive
the payout by selling or holding their shares, unlike a dividend
payout.
 Returning excess cash by way of a share buy-back gives a
company greater flexibility with regard to it’s dividend policy

11. SHARE BUY-BACK: LIMITATIONS
 Re-purchase of it’s own shares may conversely have a negative
signaling effect.
 Management may not seek to utilize any existing excess cash
effectively
 Possible mismanagements may arise if-
• Too high a price is paid for the re-purchased shares or if
• Cash resources are eroded to the level that could give rise to a risk
of insolvency.
 A return of funds by way of a share buy-back is less certain than
an annual dividend stream.