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Stock buybacks indicate to Re-purchasing of Securities by the organization that have issued them. In buybacks generally Issuer Companies return to its investors Price more than the market price per share. A share repurchase can demonstrate to investors that the business has sufficient cash set aside for emergencies and a low probability of economic troubles.

Factors influencing choices:

  • Undervaluation of firm
  • Taxation Impact
  • Future prospective
  • Capital Structure Adjustment
  • Capital Allocation Decision

Advantage of Buyback:

  • Improve Book Value, Earning Per Share and Return on Equity
  • Enhance Long- Term Shareholder value
  • Signaling Effect
  • Takeover Defence
  • Capital Market Allocation

Regulatory Framework:

  • The buy-back is authorised by the company’s articles.
  • The maximum limit of any buy-back shall be 25% or less of the aggregate of paid-up capital and free reserves of the company.
  • A special resolution required to be passed at a general meeting of the company authorizing the buy-back if buy-back is exceed 10% of paid-up equity capital and free reserves of the company.
  • Company shall not make any offer of buy-back within a period of one year reckoned from the date of expiry of buy back period of the preceding offer of buy-back, if any

Regulatory Restrictions:

  • Total DEBT to Equity Ratio should not exceed 2:1 post buy back.
  • The company shall not raise further capital for a period of one year from the expiry of buy back period.
  • The promoters or his/their associates shall not deal in the shares from the date of passing the resolution of the board of directors or the special resolution, as the case may be, till the closing of the offer.
  • Company shall not make any offer of buy-back within a period of one year reckoned from the date of expiry of buy back period of the preceding offer of buy-back, if any
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