Share Buyback
What is a Share Buyback?
A share buyback is a corporate action where a company repurchases its own shares from existing shareholders, reducing the number of outstanding shares in the market.
Objectives of Share Buyback
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Boost Earnings Per Share (EPS) and return ratios.
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Use surplus cash effectively.
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Signal confidence in the company's future.
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Prevent hostile takeovers.
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Support share price during market volatility.
Legal Framework
Companies Act, 2013 – Sections 68 to 70
SEBI (Buy-Back of Securities) Regulations, 2018
Eligibility Criteria for Share Buyback
A company can buy back its shares only if:
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It is authorized by its Articles of Association.
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A special resolution is passed in a general meeting, unless:
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The buyback is ≤10% of total paid-up equity capital and free reserves, in which case a board resolution is enough.
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The buyback is from:
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Free reserves
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Securities premium account
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Proceeds of any shares/securities, except from proceeds of fresh issue of same kind of shares
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Limits on Buyback
| Criteria | Limit |
|---|---|
| From board resolution | ≤10% of paid-up capital + free reserves |
| From special resolution | ≤25% of paid-up capital + free reserves |
| Maximum buyback of paid-up equity shares | ≤25% of total paid-up equity capital |
| Debt-equity ratio post-buyback | Not to exceed 2:1 (unless notified otherwise) |
| Minimum time gap between two buybacks | 1 year from the date of the previous buyback closure |
| Completion time for buyback | Within 1 year from date of passing resolution |
Methods of Buyback
| Method | Description |
|---|---|
| Tender Offer | Company offers to buy back shares from existing shareholders at a fixed price |
| Open Market | (Now phased out from April 2025) Company buys shares from the secondary market |
| Odd-Lot Holders | Shares are bought from small shareholders holding odd lots (less than market lot) |
As per SEBI 2023–25 reforms, open market route has been discontinued from April 1, 2025 to ensure better transparency and fairness.
Conditions & Restrictions
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No Buyback Allowed If:
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Company has defaulted in repayment of:
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Deposits
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Debentures or preference shares
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Term loans to banks/financial institutions
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Company has not complied with:
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Filing of annual returns
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Declaration of solvency
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SEBI listing regulations
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Declaration of Solvency (Form SH-9) to be filed before buyback.
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Extinguishment of shares: Must be done within 7 days of completion.
SEBI Regulations Specific to Listed Companies
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Buyback through tender offer must reserve 15% for small shareholders.
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Buyback offer size cannot exceed 25% of paid-up capital and free reserves.
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Company must not issue fresh shares for 6 months (except in specific cases) after buyback.
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Buyback must be completed within 6 months from the date of public announcement.
Recent Changes (2024–25)
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Taxation change from Oct 1, 2024:
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Earlier: Companies paid 20% buyback tax.
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Now: Tax liability shifted to shareholders, treated like dividends.
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Open Market Route removed (April 2025): Only tender offer allowed.