Essential preliminary conditions to fulfill before opting for buy back:-
Buy back must be from the company’s:-
A company does not require shareholders approval for buy back if:-
||Here capital = Paid up capital + Free Reserves|
Declaration of Solvency
Declaration of solvency needs to be filed:-
It should be:-
signed by at least 2 Directors, one of whom should be Managing Director.
It contains as Affidavit from the Board that states the following:-
Extinguishment of Securities
To be extinguished and physically destroyed within 7 days of the last date of completion of buy back.
No further issue of securities within 6 Months of buy back except for
Prohibition on buy back
|A company can’t directly or indirectly buy back its securities through:-
||A company can’t buy back its securities if it commits the following defaults in:-
||A Company also can’t buy back its securities if it has not complied with the following provisions of Companies Act, 2013:-
COMPANIES ACT 1956 VS COMPANIES ACT 2013
|Particulars||Provisions of Companies Act, 1956||Provisions of Companies Act, 2013|
|Definition of Free Reserves has been changed.||Free Reserves include||Free Reserves include|
Free reserves for distribution as dividend
Credit of the securities premium account
Free reserves for distribution as dividend
Securities premium account
|Gap between 2 offers of buyback clearly defined in the New Act||Minimum gap of 365 days from the date of preceding offer of buy back.||Minimum gap of 1 year from the date of closure of the preceding offer of buy back.|
|Buy back from odd lots has been dispensed with in the Companies Act 2013.||Buy back could be done from:
||Buy back can be done from:
|Penalty has been increased in the New Act||For company and any officer in default:
TAXATION ASPECT OF BUY BACK
Taxation for companies
|Provisions for Capital Gains shall apply on the shareholders of the Company||Chapter XII DA shall apply on the Company|
Chapter XII DA (Additional Tax):- (Section 115 QA – 115QC)
Rate of Tax = 20% + 10% surcharge + 3% cess
Effective Rate = 22.66%
Tax Liability of the Company = Buy back price * 22.66%
Provision is mandatory in nature irrespective of whether the company is liable to tax or not or not.
Tax shall be deposited within 14 days from the date of payment of consideration to the shareholder.
The Company is not liable to pay Stamp Duty.
In such case whether Independent Valuer means registered valuer or Statutory Auditor?.
Even Pvt. Co. required to get the Valuation Report?
In case of M/s. Kottaram Agro Foods Pvt. Ltd., V/s The Assistant Commissioner of Income Tax Bangalore ITAT had held that Tax Auditor of company cannot value shares of company under rule 11UA. In the above context a statutory auditor is not eligible to provide valuation certificate to the auditee company and therefore, it should be obtained from an independent valuer. Further, even a private company is required to get the Valuation Certificate.
debt equity ratio shall be 2:1, here debt means all the debt i.e Long Term and Current liabilities or only long term
Debt to equity ratio (also termed as debt-equity ratio) is a long term solvency ratio that indicates the soundness of long-term financial policies of a company. It shows the relation between the portion of assets financed by creditors and the portion of assets financed by stockholders. As the debt to equity ratio expresses the relationship between external equity (liabilities) and internal equity (stockholder’s equity), it is also known as the “external-internal equity ratio”. Thus, the formulae is Total Liabilities divided by Stockholder’s equity.
Does SH 8 needs to be filed if a private company is buying back 5% of the shares by passing a Board Resolution
As per the provisions of Section 68 of the Companies Act, 2013 SH-8 is not required to filed in case buy back is of less than 10%.
if a company wants to buy back equity shares then the maximum limit is 25% of equity shares only in a financial year
Yes, the Maximum limit for buy back is 25% of the total paid up equity capital in that Financial Year (The Financial Year in which the Company is going for Buy Back)
If a unlisted private company wants to buyback its share upto 10% of Shares + Free Reserves through its Board Meeting, then is there is any requirement of valuation and if yes then from whom and what is the procedure?
Pursuant to Rule 17 of the Companies (Share Capital and Debenture)Rules, the Company has to disclose the buy- price and the manner of arriving at the buy-price, there is no exemption from the requirement of Valuation Certificate in case the buy-back is within the limits of BR.
for example Z private limited company wants to buy back of 100 shares and A holds 100, b holds 100 and c holds 100, a and b are not interested to sold their shares to company, whether c can give his entire 100 shares in buyback or only 100/3 that is 33 shares (proportion)?
Pursuant to the Companies (Share Capital and Debentures) Rules, 2014 a Company can buy-back shares (provided it is authorized to do so in its articles) from its existing shareholders on a proportionate basis. The Company shall send a Letter of offer for the proposed buy-back all the existing shareholders of the Company, further, A,B,C may tender 33 shares each i.e in the proportion of their existing shareholding.
Is valuation report required by a pvt co. during the buy back process? At price should be shares bought back?
Buy-back is a procedure that enables a company to purchase its shares from its existing shareholders, usually at a price near to or higher than the prevailing market price. Pursuant to the provisions of Section 68, 70 of the Companies Act, 2013 and the relevant rules, the shares can be bought back at the fair value of the shares which may or may not be the book value of shares. Fair value is to be determined by an independent valuer. A proper explanation of the basis of deciding the value of buyback should be stated in the explanatory statement.
can buyback be made from single shareholder?
Pursuant to the Companies (Share Capital and Debentures) Rules, 2014 a Company can buy-back shares from its existing shareholders on a proportionate basis. Hence, the Letter of offer shall be sent to all the existing shareholders of the Company and it is the discretion of the shareholders whether they wish to tender their shares or not.
in case of a private Company At what rate it should be bought back. Book value or Face value or since there is no Fair market value of Unlisted shares
Shares can be bought back at the fair value of the shares which may or may not be the book value of shares. Fair value is to be determined by an independent valuer. A proper explanation of the basis of deciding the value of buyback should be stated in the explanatory statement.
Can the buy back price be below par, supported by a valuation report ?
Apologies for delayed response. Buy back is generally made at a price or above the price arrived in valuation report. There is no bar, if the value so arrived is below par value.
In buyback what is the deciding price that is to be paid by the company to the shares that have been bought back.
The price that is to be paid by the company for the shares that have been bought back is dependent on the valuation report for the shares of the company.
GOOD ONE .PLEASE KEEP IT UP