How to Do a explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
To buy back shares, check the Section 68 limits, pass a Board resolution (up to 10%) or special resolution (up to 25%), file the letter of offer in Form SH-8 with the declaration of solvency in SH-9, complete the buy-back, extinguish the shares within 7 days and file the return in Form SH-11.
Overview
A buy-back lets a company purchase its own shares from shareholders, returning surplus cash, improving EPS, and consolidating promoter holding. It is governed by Sections 68 to 70 and the Companies (Share Capital and Debentures) Rules, 2014.
When It Is Required & Legal Basis
Section 68 permits buy-back out of free reserves, the securities premium account, or proceeds of a fresh issue. A Board resolution allows buy-back of up to 10% of paid-up equity capital and free reserves; a special resolution is required for up to 25% in a financial year. The post buy-back debt-equity ratio must not exceed 2:1.
Step-by-Step Process
- Check eligibility. Confirm the limits, sources, solvency and the 2:1 debt ratio; ensure the Articles authorise buy-back.
- Resolution. Pass a Board resolution (up to 10%) or special resolution (up to 25%); file MGT-14 for the special resolution.
- File SH-8. File the letter of offer in Form SH-8 with the requisite disclosures.
- File SH-9. File the declaration of solvency in Form SH-9, verified by affidavit and signed by two directors.
- Offer & payment. Keep the offer open 15–30 days, verify acceptances within 15 days, and pay within 7 days of verification.
- Extinguish & file SH-11. Destroy the bought-back certificates within 7 days, transfer nominal value to CRR, and file the return in Form SH-11 with the SH-15 compliance certificate within 30 days.
Forms, Attachments & Fees
| Form | Purpose | Timeline |
|---|---|---|
| MGT-14 (if SR) | Special resolution for buy-back | Within 30 days |
| SH-8 | Letter of offer for buy-back | Before the offer opens |
| SH-9 | Declaration of solvency | Along with SH-8 |
| SH-11 | Return of buy-back (with SH-15) | Within 30 days of completion |
Attachments include audited accounts, board/members resolutions, the auditor-certified solvency and the SH-15 compliance certificate signed by two directors.
Timeline & Due Dates
Buy-back must be completed within 1 year of the resolution. Offer open 15–30 days; payment within 7 days of verification; extinguishment within 7 days of payment; SH-11 within 30 days of completion. No further buy-back for one year after closure.
Penalty for Delay / Non-compliance
Under Section 68(11), default in complying with the buy-back provisions attracts a penalty on the company of ₹1,00,000 up to ₹3,00,000 and on every officer in default of ₹1,00,000 up to ₹3,00,000, besides imprisonment up to 3 years for the officer.
Practical Tips
- Confirm the 2:1 post buy-back debt-equity ratio using projected figures before committing.
- Transfer the nominal value of extinguished shares to the Capital Redemption Reserve without fail.
- Remember buy-back is now taxable in the hands of the shareholder (post-October 2024), so factor tax into the offer communication.