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    COMPLIANCERELATING TOBUY BACK OFSHARES

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    INTRODUCTION OF TEAM MEMBERS

    PRATIK SHAH(GROUP LEADER):WRO 0441853

    &

    PRAKASH GONDALIYA :WRO 0276004

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    REASON FOR SELECTING THIS TOPIC

    During the course of trading and commerce we have many a

    times come across the term Buy Back of Shares.

    Most of the common people are not very well acquaintedwith this term, so to give a concise and brief knowledge

    about the topic, we have chosen it.

    One should know what Buy Back of Shares means and whatare the compliances to be followed , so as to understand its

    financial impact on the company.

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    BUY BACK OF SHARES(Introduction)

    Buy Back (or share repurchase) is the

    reacquisition by a company of its own stock

    .A corporation can repurchase its own stock by

    distributing cash to existing shareholders inexchange for a fraction of the company's

    outstanding equity; that is, cash is exchanged for

    a reduction in the number of shares

    outstanding.The company either retires therepurchased shares or keeps them as treasury

    stocks, available for re-issuance.

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    OBJECTIVES..

    To increase promoters holding

    Increase earning per share

    Rationalize the capital structure by writing off capital

    not represented by available assets.

    Support share value

    .

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    To pay surplus cash not required by business

    Tax advantages

    Flexibility

    Increasing financial leverage

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    SECTIONS

    The provisions regulating buy back of shares are

    contained in section 77A, 77AA and 77B of The

    Companies Act,1956.

    These were inserted by The Companies(Amendment) act,1999.

    The Securities and exchange board of India (SEBI)

    framed The SEBI(buy back of securities)

    Regulations,1999 and The department of company

    Affairs framed the rules for Private limited company

    and Unlisted Public company.

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    RESOURCES OF BUY BACK

    Free reserves

    Securities premium account

    Proceeds of any shares or other specified

    securities

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    CONDITIONS OF BUY BACK

    Articles of Association

    Special resolution has to be passed in the general

    meeting

    Buy-back cannot be of more than twenty-fivepercent of the total paid-up capital and fee reserves

    Ratio of the debt owed by the company is not morethan twice the capital and its free reserves

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    Default in any of the following

    i. Repayment of deposit

    ii. Redemption of debentures, or preference

    sharesiii. Payment of dividend

    iv. Repayment of any term loan

    All the shares are fully paid-up

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    PROCEDURES A Company can propose to buy back its shares, after

    passing of the Special/Board resolution. It has to

    make a public announcement in at least one English

    National Daily, one Hindi National daily and One

    Regional Language Daily.

    A public notice shall be given containing disclosures

    as specified in Schedule I of the SEBI regulations.

    A draft letter of offer shall be filed with SEBI through

    a merchant Banker. The letter of offer shall then be

    dispatched to the members of the company.

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    A copy of the Board resolution authorizing the buy

    back shall be filed with the SEBI and stock exchanges.

    The date of opening of the offer shall not be earlier

    than seven days or later than 30 days after the

    specified date

    The buy back offer shall remain open for a period of

    not less than 15 days and not more than 30 days.

    A company opting for buy back through the public

    offer or tender offer shall open an escrow Account.

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    ISSUES OF FURTHER SHARES

    Every buy-back shall be completed within twelve

    months from the date of passing the special

    resolution or Board resolution as the case may be.

    A company which has bought back any securitycannot make any issue of the same kind of securities

    in any manner whether by way of public issue, rights

    issue up to six months from the date of completion

    of buy back.

    Company shall file with the Registrar a declaration of

    Solvency.

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    POSITIVE IMPACT

    It could avert a hostile takeover bid by reducing

    number of shares in circulation

    Market generally interprets buy back as a positve

    aspect Shareholders have a choice of deciding whether or

    not to receive the payout by selling or holding their

    shares,unlike a dividend payout

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    NEGATIVE IMPACT

    A return of funds by way of a share buy back isless certain than an annual dividend stream

    Possible mismanagement may arise if:o Too high a price is paid for repurchase of shares

    o Cash resources are eroded to the level that could

    lead to a risk of insolvency

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    PENALTY (u/s 621A )

    If a company makes default in complying with the

    provisions or any officer of the company who is in

    default shall be punishable with:-

    Imprisonment for a term which may extend to 2

    years

    or With fine which may extend to Rs.50,000/- or with

    both

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    CONCLUSION

    Buyback should be used as an opportunity to

    exit only when there is concern over a

    companys prospects or when the post

    buyback free float is expected to shrinkconsiderably. In most of the cases, buyback do

    offer the lure of an immediate benefit-but you

    might be better off as a residual shareholder,and gain from a hike in the shares of assets

    and profits of the business.

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    BIBLIOGRAPHY.

    www.legalserviceindia.com

    http://www.investopedia.com/terms/b/buyback.asp

    http://en.wikipedia.org/wiki/Share_repurchase

    http://www.sebi.gov.in/cms/sebi_data/commondocs

    /bbreg_p.pdf

    http://www.legalserviceindia.com/http://www.investopedia.com/terms/b/buyback.asphttp://en.wikipedia.org/wiki/Share_repurchasehttp://en.wikipedia.org/wiki/Share_repurchasehttp://www.investopedia.com/terms/b/buyback.asphttp://www.legalserviceindia.com/
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    22/22ANY QUESTION ????