Buyback of shares is corporative action where a corporation buybacks its own share from its existing shareholders. This method may be adopted by a company as a better way to utilize the cash available with them in investment projects. Buyback of shares is a method by which a corporate/company buyback or repurchases its own shares back. Buyback is a method that allows companies to invest in them.

It's a method that increases the ownership of the company, in the company. When a company buys back its own shares it's treated as a method of increasing its own ownership. A company can either buy back the shares directly from the shareholders or the public at large. There are various reasons as to why a company would buy back its own shares, such as ownership consolidation, boosting its financial ratios, or when there is the undervaluation of the shares in the market. Buyback of shares is also done to avoid mergers or takeovers, for example, is a third party is planning to buy a major portion of a company’s shares, then the company can buy back its own shares from the market to keep the ownership in their own hands. Buyback is much more tax-efficient than dividend because the rate of tax is dependent on the period for which it was held.

Buyback of shares in India is mainly governed under two laws, the Company Act of 2013, and the SEBI i.e. the Securities Exchange Board of India. According to SEBI, there are two methods for the buyback of shares by a company, the first option being the open market and the second through a tender offer. Both the methods are used quite frequently in India however; the execution of both the methods is very different. In the case of an open market, the promoters are not allowed to sell their shares, but when it comes to tender offers, the promoters can give out a tender for their respective shares.

When it comes to buyback from the open market, the company under this method buyback its share from the market and this process is done by the company brokers. There is no fixed price at which the company may buy and there is no fixed number of shares that a company may buy from the open market. However, under the Companies Act, it is well stated that buyback should not exceed 25% of the paid-up capital of the company. Section 69 of the companies act states the conditions for the buyback of shares by a company.

Concerning the fixed price method or the tender offer, the company offers a fixed price at which the company will purchase the shares. In this scenario, the company offers a price that is higher than the market price of the shares. This method is fast but costly than buyback from the open market. Buyback of shares can provide various advantages, such as tax benefit, flexibility; it also acts as an indication of the growth of the company, etc.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.