Panel Sets Terms For Buyback Of Shares

Conditions under which companies would be permitted to buy back their own shares have been listed by the Companies Act working group. Buybacks would be allowed by existing shareholders on a proportionate basis, through open market operations, from odd lots and negotiated deals. The repurchase of shares issued under employee stock options would also be permitted.

Shares could then either be reissued or extinguished, depending on the companys requirements. However, companies would be required to follow a highly transparent mode of buying back shares. The board would adopt a resolution which would be put to shareholders for their approval.

The special resolution would have to be preceded by a notice to shareholders, accompanied by an explanatory note explaining the need for it, the number and class of shares or any other security that was to be acquired, the amount to be invested and the time limit for completion of such a buyback. Buyback process would have to be completed within a maximum of 15 months from the date of passing the resolution. The company would also be required to state whether it proposes the buyback in order to reduce equity or whether it plans to reissue the shares.

 

However, even if the company states upfront that the shares bought back would be reissued at a later date, the shares would be subject to a one-year lock-in. The year would begin from the date of the last purchase of the companys shares. The only conditions under which the company could issue further shares during this one-year period would be either as bonus offerings or as part of stock option schemes, conversion of preference shares into equity or debentures and conversions of warrants issued earlier.

The company would also be bound by the debt-equity ratio following the completion of the process, which would be laid down by the government, based on industry norms.

Due to a technical error, an old report on the same subject was published on Wednesday.