Section 68 of the Companies Act, 2013
Section 68 of the Companies Act, 2013
Title: Power of Company to Purchase its Own Securities (Buy-back of Shares)
🔹 Bare Act Summary:
Section 68 empowers a company to buy back its own shares or other specified securities, but only under specific conditions.
🔹 Key Provisions:
Sources of Buy-back:
A company may purchase its own shares or other specified securities out of:
Its free reserves;
The securities premium account; or
The proceeds of any shares or other specified securities, but not from the proceeds of an earlier issue of the same kind of shares.
Authorization:
The Articles of Association must authorize the buy-back.
A special resolution is required in a general meeting unless the buy-back is 10% or less of the total paid-up equity capital and free reserves (then board resolution is enough).
Limitations:
Buy-back must be ≤25% of the total paid-up capital and free reserves.
For equity shares, the buy-back must be ≤25% of the total paid-up equity capital in that financial year.
Debt-equity ratio after buy-back must not exceed 2:1, unless otherwise prescribed.
Fully Paid-up:
Only fully paid-up shares or securities can be bought back.
Completion Time:
Buy-back must be completed within 1 year from the date of passing the special or board resolution.
Extinguishment:
Securities bought back must be extinguished and physically destroyed within 7 days of completion.
No Further Issue:
The company cannot issue the same kind of securities for 6 months post buy-back (except for bonus shares or in discharge of obligations like ESOPs or convertible instruments).
Filing Requirements:
A declaration of solvency must be filed with the Registrar and SEBI (for listed companies) before buy-back.
Penalties:
If a company defaults, it can face a fine up to ₹3 lakh, and every officer in default can be fined up to ₹1 lakh.
🔹 Simple Explanation:
Section 68 allows a company to buy back its own shares, but:
It must follow strict conditions,
Use only specific sources of funds,
Get proper approvals,
Ensure it doesn’t damage the financial stability of the company.
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