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Redemption

Buyback
By: Sune Nerissa Madhok

INTRODUCTION:

The provisions on redemption of securities by an Indian company are provided in the Indian Companies Act of 1956 ("Act"), Article 77A be and if a company is Regulation member of a registered stock exchange in the country after the SEBI (Buyback of Securities) 1998 shall apply.

OBJECTIVE:

This Article aims to clarify the procedure for the company looking to redeem their securities.

TEXT:

The articles of association company with the intention to repurchase its securities must specifically authorize the company to do so.

A. Redemption Methods
acquisition modes allowed companies public and private are not included:
(A) of the existing shareholders in proportion of private placements;
(B) by purchasing securities issued employees of the Company pursuant to a stock option plan or contribution.

In addition to a special resolution by shareholders at a general meeting authorizing the purchase is necessary.
[Provided that the redemption is greater than 10% of total capital reserves paid or free society then such redemption must be authorized by the board through a resolution adopted at the meeting.]
The notice sent to shareholders convening a general meeting to propose the special resolution was adopted to be accompanied by a explanatory memorandum, which should include the following:

(I) full access to all material facts;
(Ii) the reasons for the need of redemption;
(Iii) the class of security to be purchased under the buyback;
(Iv) the amount to be invested in the acquisition and
(V) the deadline for completion of purchase (not exceeding 12 months from the date of approval of special resolution).

B. Letter of Offer
• A draft letter of offer containing information specified in Annex II of Regulation must be deposited in the Commercial Register (OCR).
• The solvency statement must be submitted at No. 4A form must be submitted the People's Republic of China alongwith the letter of offer.
• (solvency statement verified by an affidavit by the board that is able to meet its obligations and will not be insolvent in the year following the date of the declaration and must be signed by at least two directors.)
• A declaration of solvency must be presented as No. 4A with the Republic of China and the letter of offer.

C. Offer Procedure
(I) A letter of offer must be sent within 21 days from the date of its submission to the Republic of China.
(Ii) provide open 15 to 30 days from the date of issue of letter of offer.
(Iii) the acceptance of being on a proportional basis if the shares issued by the members, the total number of shares to be acquired
(Iv) the offers deemed accepted if the rejection is communicated in 21 days after the closing date.

D. Payment Terms
Immediately after the conclusion of the offer date, the company to open a special account and deposit the total amount payable in return for redemption.

E. Termination of Share Certificate
• The certificates of shares repurchased must be physically destroyed in the presence of Secretary of the Company, in practice all the time in the 7 days from the date of completion of the repurchase program.
• The company must submit to the Republic of China Certificate duly verified by two directors and the managing director and whole time Company Secretary on compliance with this provision.

F. Return redemption of securities is being filed by the company with the Republic of China in the form specified in Schedule A of regulations within 30 days of completion.

G. The company must keep a register of shares repurchased on a form provided in Annex B of- rules.

PROVISIONS shareholders resident outside India

If shareholders are the people who live outside India, the price Redemption can be done must be in accordance with the underwriting guidelines set by the Reserve Bank of India. The price at which shares can be saved by an Indian company to its shareholders resident outside India is due to a price that is less than two independent evaluations of actions, one for auditors of the company and the other by an accountant or a banker in Category 1 registered with the Securities and Exchange Commission of India.

OTHER FEATURES

• Redemption is allowed only for shares and preferred shares, employee share options and from mutual aid, of a society.

• A company may use the following to repurchase its shares:
(A) its reserve available;
(B) money thrown into the securities premium account
(C) proceeds from the issuance of shares or other securities specified securities except the product of the previous issue of shares or other specific values of the same class as are buying new.
A company may not use money borrowed from banks and financial institutions to buy their shares.

• Redemption is permitted only for fully paid shares / securities of a company. Partly paid shares can not be bought again.

• The debt ratio (ie secured and unsecured debts) incurred by the company after the takeover, not must not be more than double its paid up capital and free reserves.

• Quantum redemption
(A) the greatest of all redemption limits is limited to 25% of total capital (equity, ie paid and preference share capital) and reserves free disposal of the company.
(B) the repurchase of shares of a company at the end of the year may not exceed 25% of its total capital paid-up capital.

• Time constraints
(A) must be completed within 12 months from the date of the meeting general or board meeting;
(B) After the takeover, a similar question of class actions and / or securities, including through a preferential allotment, rights issue or public issue is allowed for a maximum of 6 months from the date of completion of redemption.
However, this does not prevent the company from issuing any bonus shares or issue of shares remaining under the contract (such as conversion of warrants, debentures or preference shares).

Conclusion:

Buy back is a mechanism by which the company pays its investors and stock repurchases. Once the acquisition is completed, the shares have been repurchased for stay in business, but they are off. It is generally used when the value of shares is diluted, or if you have large companies amounts of free reserves or if the promoters of the company wishes to acquire a larger share in the control of the company.

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