{"id":2427,"date":"2019-09-23T05:09:10","date_gmt":"2019-09-23T05:09:10","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2427"},"modified":"2019-09-23T05:09:10","modified_gmt":"2019-09-23T05:09:10","slug":"buy-back-of-shares","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/buy-back-of-shares\/","title":{"rendered":"BUY BACK OF SHARES"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#BUY_BACK_OF_SHARES\" title=\"BUY BACK OF SHARES\">BUY BACK OF SHARES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#MODES_OF_BUY_BACK\" title=\"MODES OF BUY BACK\">MODES OF BUY BACK<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#REASONS_FOR_BUY_BACK_OF_SHARES\" title=\"REASONS FOR BUY BACK OF SHARES\">REASONS FOR BUY BACK OF SHARES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#LEGAL_PROVISIONS_REGARDING_BUY_BACK\" title=\"LEGAL PROVISIONS REGARDING BUY BACK\">LEGAL PROVISIONS REGARDING BUY BACK<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#SOURCES_OF_FUNDS_FOR_BUY_BACK\" title=\"SOURCES OF FUNDS FOR BUY BACK\">SOURCES OF FUNDS FOR BUY BACK<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#AUTHORIZATION_AS_PER_ARTICLES_OF_ASSOCIATION\" title=\"AUTHORIZATION AS PER ARTICLES OF ASSOCIATION\">AUTHORIZATION AS PER ARTICLES OF ASSOCIATION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#PASSING_OF_SPECIAL_RESOLUTION\" title=\"PASSING OF SPECIAL RESOLUTION\">PASSING OF SPECIAL RESOLUTION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#RESERVE_OF_AMOUNT_FOR_BUY_BACK\" title=\"RESERVE OF AMOUNT FOR BUY BACK\">RESERVE OF AMOUNT FOR BUY BACK<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#DEBT-EQUITY_RATIO\" title=\"DEBT-EQUITY RATIO\">DEBT-EQUITY RATIO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#EQUITY_SHARES_MUST_BE_FULLY_PAID_UP\" title=\"EQUITY SHARES MUST BE FULLY PAID UP\">EQUITY SHARES MUST BE FULLY PAID UP<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#COMPLIANCE_WITH_SEBI_GUIDELINES\" title=\"COMPLIANCE WITH SEBI GUIDELINES\">COMPLIANCE WITH SEBI GUIDELINES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#NOTICE_OF_THE_MEETING_FOR_BUY_BACK\" title=\"NOTICE OF THE MEETING FOR BUY BACK\">NOTICE OF THE MEETING FOR BUY BACK<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#TIME_FOR_COMPLETION_OF_BUY_BACK\" title=\"TIME FOR COMPLETION OF BUY BACK\">TIME FOR COMPLETION OF BUY BACK<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#DISPOSAL_OF_SHARES_BOUGHT_BACK\" title=\"DISPOSAL OF SHARES BOUGHT BACK\">DISPOSAL OF SHARES BOUGHT BACK<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#OTHER_PROVISIONS\" title=\"OTHER PROVISIONS\">OTHER PROVISIONS<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#ADVANTAGES_OF_BUY_BACK_OF_SHARES\" title=\"ADVANTAGES OF BUY BACK OF SHARES\">ADVANTAGES OF BUY BACK OF SHARES<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#IMPROVES_EARNING_PER_SHARE\" title=\"IMPROVES EARNING PER SHARE\">IMPROVES EARNING PER SHARE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#PREVENT_UNWELCOME_TAKEOVER_BIDS\" title=\"PREVENT UNWELCOME TAKEOVER BIDS\">PREVENT UNWELCOME TAKEOVER BIDS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#EFFECTIVE_UTILISATION_OF_SURPLUS_CASH\" title=\"EFFECTIVE UTILISATION OF SURPLUS CASH\">EFFECTIVE UTILISATION OF SURPLUS CASH<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#INDICATION_OF_FUTURE_PROSPECTS\" title=\"INDICATION OF FUTURE PROSPECTS\">INDICATION OF FUTURE PROSPECTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#ENSURES_MAXIMUM_RETURN_TO_SHAREHOLDERS\" title=\"ENSURES MAXIMUM RETURN TO SHAREHOLDERS\">ENSURES MAXIMUM RETURN TO SHAREHOLDERS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#CONVENIENT_AS_COMPARED_TO_CAPITAL_REDUCTION\" title=\"CONVENIENT AS COMPARED TO CAPITAL REDUCTION\">CONVENIENT AS COMPARED TO CAPITAL REDUCTION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#OTHER_ADVANTAGES\" title=\"OTHER ADVANTAGES\">OTHER ADVANTAGES<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#LIMITATIONS_DISADVANTAGES_OF_BUY_BACK\" title=\"LIMITATIONS\/ DISADVANTAGES OF BUY BACK&nbsp;\">LIMITATIONS\/ DISADVANTAGES OF BUY BACK&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#ENCOURAGES_INSIDER_TRADING\" title=\"ENCOURAGES INSIDER TRADING\">ENCOURAGES INSIDER TRADING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-26\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#MANIPULATION_OF_SHARE_PRICES\" title=\"MANIPULATION OF SHARE PRICES\">MANIPULATION OF SHARE PRICES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-27\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#WEAKENING_MINORITY_SHAREHOLDERS_STAKE\" title=\"WEAKENING MINORITY SHAREHOLDERS STAKE\">WEAKENING MINORITY SHAREHOLDERS STAKE<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-28\" href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/#ACCOUNTING_TREATMENT_FOR_BUY_BACK_OF_SHARES\" title=\"ACCOUNTING TREATMENT FOR BUY BACK OF SHARES\">ACCOUNTING TREATMENT FOR BUY BACK OF SHARES<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"BUY_BACK_OF_SHARES\"><\/span>BUY BACK OF SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Buy Back is the corporate action in which a company buys\nback its shares from the existing shareholders usually at a price higher than\nthe market price. When the company buys its shares back, the number of\noutstanding shares in the market reduces.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Buy Back of Shares is also known as <strong>\u2018REPURCHASE OF SHARES.\u2019<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">A Buy Back allows a company to invest in themselves. By\nreducing the number of shares outstanding in the market, buy backs increase the\nproportion of shares a company owns. The buy back of shares is governed by the\nsection 68 of the Companies Act 2013.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"MODES_OF_BUY_BACK\"><\/span>MODES OF BUY BACK<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Shareholders may be presented with a tender offer whereby\nthey have the option to submit a portion or all of their shares within a\ncertain time period.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Companies buy back their in the open market over the\nextended period of time.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"REASONS_FOR_BUY_BACK_OF_SHARES\"><\/span>REASONS FOR BUY BACK OF SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The following are the reasons for buy back of shares:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>To improve the earnings per share.<\/li><li>To improve the return on capital or Return on\nnet worth and to enhance the long term shareholder\u2019s value.<\/li><li>To provide an additional exit route to\nshareholders when shares are undervalued.<\/li><li>To enhance consolidation of stake in company.<\/li><li>To prevent unwelcome takeover bids.<\/li><li>To return surplus cash to shareholders.<\/li><li>To achieve optimum capital structure.<\/li><li>To support share prices during poor market\nconditions.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"LEGAL_PROVISIONS_REGARDING_BUY_BACK\"><\/span>LEGAL PROVISIONS REGARDING BUY BACK<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The buyback of shares are regulated under the <strong>Section 68<\/strong> of Companies Act and provisions of SEBI (Securities Exchange Board of India). The following are the legal provisions regarding buyback:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"SOURCES_OF_FUNDS_FOR_BUY_BACK\"><\/span>SOURCES OF FUNDS FOR BUY BACK<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The shares may be bought back by arranging the funds from\nthe various sources which are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Free reserves<\/li><li>Securities premium account<\/li><li>Proceeds of issue of shares or specified\nsecurities.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"AUTHORIZATION_AS_PER_ARTICLES_OF_ASSOCIATION\"><\/span>AUTHORIZATION AS PER ARTICLES OF ASSOCIATION<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">There must be a provision in the Articles of Association\nauthorizing the company to buy back its own shares. An Articles of Association\nis the document governing the internal affairs of the company.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"PASSING_OF_SPECIAL_RESOLUTION\"><\/span>PASSING OF SPECIAL RESOLUTION<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">A special resolution must also be passed in the general\nmeeting by the Board of Directors. The resolution must specify: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The buyback of 25% shares or other specified\nsecurities of paid up capital.<\/li><li>Buyback of equity shares should not be more than\n<strong>25% of total paid up capital<\/strong> in any\nfinancial year.<\/li><li>Approval of buyback of <strong>10% of equity paid up capital<\/strong> only.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"RESERVE_OF_AMOUNT_FOR_BUY_BACK\"><\/span>RESERVE OF AMOUNT FOR BUY BACK<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The listed company shall ensure that atleast 50% of the\namount is reserved for buy back in specified securities.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DEBT-EQUITY_RATIO\"><\/span>DEBT-EQUITY RATIO<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The Debt Equity ratio of the company after the buyback\nshould not be more than the standard i.e. 2:1.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"EQUITY_SHARES_MUST_BE_FULLY_PAID_UP\"><\/span>EQUITY SHARES MUST BE FULLY PAID UP<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The Section 68 of the Companies Act states that the equity\nshares to be bought back must be fully paid up. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"COMPLIANCE_WITH_SEBI_GUIDELINES\"><\/span>COMPLIANCE WITH SEBI GUIDELINES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">In case the company has listed its shares or other specified\nsecurities in Stock Exchange, then the buyback must be in accordance with the\nSEBI Guidelines.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NOTICE_OF_THE_MEETING_FOR_BUY_BACK\"><\/span>NOTICE OF THE MEETING FOR BUY BACK<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The notice of the meeting at which the special resolution on\nbuy-back is proposed to be passed has to be accompanied by the explanatory\nstatement providing for:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>A full and complete disclosure of all material\nfacts.<\/li><li>The necessity for buy back<\/li><li>The class of shares or security intended to be\npurchased under the buy back<\/li><li>The amount to be invested under the buy back<\/li><li>The time limit for the completion of buy back. <\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"TIME_FOR_COMPLETION_OF_BUY_BACK\"><\/span>TIME FOR COMPLETION OF BUY BACK<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Every buy-back should be completed within 12 months from the\ndate of passing the special resolution.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISPOSAL_OF_SHARES_BOUGHT_BACK\"><\/span>DISPOSAL OF SHARES BOUGHT BACK<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The equity shares bought back shall be extinguished and\nphysically destroyed within 7 days from the date of buy back.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"OTHER_PROVISIONS\"><\/span>OTHER PROVISIONS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The other provisions regarding buy back are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>No buy back should be made out of proceeds of an\nearlier issue of same kind of shares or same kind of other specified\nsecurities.<\/li><li>The amount credited after the close of financial\nyear to free reserves and the securities premium should not be utilized for the\nbuy back.<\/li><li>A company can issue bonus shares at any time\nafter the buyback of shares.<\/li><li>No new shares can be issued within 6 months\nexcept bonus shares.<\/li><li>Passing of resolution may not create any\nobligation on the company to buy back its own shares.<\/li><li>The payment for buy back will be done by the way\nof cash\/bank overdraft or cheque only.<\/li><li>Cost of the buy back is taken as an expense and\nwill be charged to profit and loss account.<\/li><li>Buyback of shares cannot be done from promoters.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"ADVANTAGES_OF_BUY_BACK_OF_SHARES\"><\/span>ADVANTAGES OF BUY BACK OF SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"IMPROVES_EARNING_PER_SHARE\"><\/span>IMPROVES EARNING PER SHARE<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buy back improves the market value of the shares. It results\nin higher earnings per share. As a result the demand of purchase of shares\nincreases and the market price of shares increases.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"PREVENT_UNWELCOME_TAKEOVER_BIDS\"><\/span>PREVENT UNWELCOME TAKEOVER BIDS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buyback helps in avoiding the takeover bids by the big companies. The buyback of shares reduces the stock from the market. The right of controlling the company by the promoters increases. It acts as a defensive mechanism against exploitative takeover bids.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"EFFECTIVE_UTILISATION_OF_SURPLUS_CASH\"><\/span>EFFECTIVE UTILISATION OF SURPLUS CASH<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The buyback facilities enable the company to manage their\ncash effectively. Many companies in this country face the problem of surplus\ncash and have no idea to invest them profitably. So, it would be better to return\nthe surplus money to the shareholders.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"INDICATION_OF_FUTURE_PROSPECTS\"><\/span>INDICATION OF FUTURE PROSPECTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The buyback decision expresses clearly the view of the\nmanagement that the future prospects are good and investing in its own shares\nis the best option. Also, the announcement of buy-back point out that the\nmarket is undervaluing the company\u2019s shares in their book value.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"ENSURES_MAXIMUM_RETURN_TO_SHAREHOLDERS\"><\/span>ENSURES MAXIMUM RETURN TO SHAREHOLDERS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buy-back increases the return on the shares as it leads to\nthe decrease in the number of equity shares. So the profits can be divided in\nthe increased ratio.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"CONVENIENT_AS_COMPARED_TO_CAPITAL_REDUCTION\"><\/span>CONVENIENT AS COMPARED TO CAPITAL REDUCTION<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buyback of shares facilitates reduction of share capital\nwithout recourse to lengthy capital reduction process and a company can\nsuitably swap up equity for debt.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"OTHER_ADVANTAGES\"><\/span>OTHER ADVANTAGES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The other advantages of buyback are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>It enhances the consolidation of the stake in\nthe company.<\/li><li>It helps in achieving the optimum capital\nstructure.<\/li><li>It supports the share prices during poor\nperiods.<\/li><li>It helps in serving the equity more efficiently.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"LIMITATIONS_DISADVANTAGES_OF_BUY_BACK\"><\/span>LIMITATIONS\/ DISADVANTAGES OF BUY BACK&nbsp; <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The limitations of buy back are as follows:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"ENCOURAGES_INSIDER_TRADING\"><\/span>ENCOURAGES INSIDER TRADING<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buy-back facility may prompt the promoters to resort to\ninside trading for their selfish interests. The promoters before the buy-back,\nmay understate the earnings by manipulating the accounting policies and\nhighlight other unfavorable factors affecting the earnings. This would result\ninto fall in the market price of the shares and will provide an opportunity to\nthe promoters to buy them at the lower prices. In this manner the insider would\nmake extra money when the company buy-back these shares at higher prices.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"MANIPULATION_OF_SHARE_PRICES\"><\/span>MANIPULATION OF SHARE PRICES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buy-back of shares may lead to artificial manipulations of\nstock prices in the stock exchange by groups having vested interests and thus\ncreating confusion and loss to the innocent shareholders.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"WEAKENING_MINORITY_SHAREHOLDERS_STAKE\"><\/span>WEAKENING MINORITY SHAREHOLDERS STAKE<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Buy-back mechanism is generally used by the promoters to\nenhance and consolidate their controlling interests in their companies as a\nresult of which the position of minority shareholders is weakend.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"ACCOUNTING_TREATMENT_FOR_BUY_BACK_OF_SHARES\"><\/span>ACCOUNTING TREATMENT FOR BUY BACK OF SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\"><strong>SALE OF INVESTMENTS FOR BUY BACK OF SHARES<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">1.<strong>If sale is at profit<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Bank A\/c Dr.   <br \/>         To Investments A\/c   <br \/>         To Statement of profit and loss A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>2.If sale is at loss<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Bank A\/c Dr.   <br \/>Statement of profit and loss A\/c  Dr. &nbsp;&nbsp;&nbsp;&nbsp; <br \/>          To Investments A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>ISSUE OF DEBENTURES OR OTHER SPECIFIED SECURITIES FOR THE BUY-BACK OF SHARES<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Bank A\/c Dr.   <br \/>           To Debentures Account   <br \/>           To Specified Securities Account   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>ENTRY FOR PAYMENT FOR BUY-BACK OF SHARES<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>1.When shares are bought back at par<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Equity Share Capital A\/c Dr.   &nbsp;<br \/>             To Bank Account   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>2.When shares are bought back at premium<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Equity Share Capital A\/c Dr.   <br \/>Premium on buy-back Account Dr.<br \/>   &nbsp;To Bank Account   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>3.When shares are bought back at discount<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Equity share capital A\/c Dr.<br \/>   To Bank Account<br \/>   To Capital Reserve Account   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CREATION OF CAPITAL REDEMPTION RESERVE<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Free reserves Account&nbsp;&nbsp; Dr.<br \/>Securities Premium Account Dr.<br \/>   To Capital Redemption Reserve A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>WRITING OFF PREMIUM ON BUY-BACK ACCOUNT<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>Securities Premium A\/c Dr.<br \/>General Reserve A\/c Dr.<br \/>Statement of Profit and Loss A\/c Dr.<br \/>   &nbsp;To Premium on buy back A\/c   <\/td><\/tr><\/tbody><\/table>\n","protected":false},"excerpt":{"rendered":"<p>BUY BACK OF SHARES Buy Back is the corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than the market price. When the company buys its shares back, the number of outstanding shares in the market reduces. Buy Back of Shares is also known as&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/buy-back-of-shares\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;BUY BACK OF SHARES&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2430,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[155,156,157,158,159],"class_list":["post-2427","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-accounting","tag-accounting-treatment-for-buy-back-of-shares","tag-advantages-of-buy-back-of-shares","tag-legal-provisions-regarding-buy-back","tag-limitations-disadvantages-of-buy-back","tag-reasons-for-buy-back-of-shares"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2427","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2427"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2427\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2430"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2427"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2427"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2427"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}