Members Notice for Buy Back of Shares under Companies Act 2013

A Comprehensive Template Complying with Legal Provisions

Key Takeaways

Regulatory Compliance: The notice must strictly adhere to Sections 68, 69, and 70 of the Companies Act, 2013, along with relevant SEBI and other statutory requirements.
Detailed Disclosure: It should clearly disclose the purpose, mechanics, and parameters of the buyback including the method, price determination, and funding sources.
Member Engagement: The notice must provide comprehensive details regarding meeting date, voting procedures, and proxy mechanisms to ensure active member participation.

Introduction and Overview

The buyback of shares is a corporate strategy whereby a company repurchases its own shares from existing shareholders in order to optimize its capital structure, improve financial ratios such as earnings per share (EPS) and return on equity (ROE), or to provide an exit opportunity when stocks are undervalued or under traded. In India, the concept gained prominence with the Companies Act, 2013, which laid down structured guidelines and regulatory safeguards to ensure that the buyback process maintains transparency, fairness, and compliance. This comprehensive notice is intended to facilitate clear communication with members while ensuring adherence to the statutory requirements set forth in the Companies Act, 2013 and associated regulations.

Template for Members Notice

Below is a detailed template that you may customize in accordance with your company’s specific buyback proposal and legal requirements.

[Company Name]

[Complete Registered Office Address]
CIN: [Corporate Identification Number]
Telephone: [Your Contact Number] | Email: [Your Email Address]

Date: [DD Month, YYYY]

To,

All Members/Shareholders of [Company Name]
[Company Address Line 1]
[Company Address Line 2]

Notice of Extraordinary General Meeting (EGM) for Buyback of Shares

Dear Shareholder,

In accordance with Section 68 and the relevant provisions of the Companies Act, 2013, and the applicable rules and regulations, you are hereby notified that an Extraordinary General Meeting (EGM) of the members of [Company Name] will be held for the purpose of considering and approving the resolution for the buyback of shares.

Meeting Details

Date: [Meeting Date]
Time: [Meeting Time]
Venue: [Complete Venue Address including floor/room details, if applicable]

Agenda for the Meeting

The agenda for the meeting will include, among other items, the following primary business:

Approval of the Proposal for Buyback of Shares under the Companies Act, 2013.
Authorization of the Board of Directors to finalize the terms, conditions, price, and other operational parameters of the buyback scheme.
Resolution(s) to empower the Board to undertake necessary actions including filing of returns and submission of offer documents in the prescribed formats.

Detailed Explanatory Statement

Purpose and Rationale for the Buyback

The decision to initiate a buyback of shares is driven by the following strategic considerations:

Optimizing Capital Structure: Reduction of excess capital by repurchasing shares, thereby improving key financial ratios such as earnings per share (EPS) and return on equity (ROE).
Enhancing Shareholder Value: With a reduced number of outstanding shares, net earnings are distributed among fewer shareholders, potentially leading to an increase in each shareholder's portion of company profits.
Providing an Exit Opportunity: The buyback offers shareholders the option to monetize their investment, particularly in scenarios where market conditions render the shares undervalued.
Restructuring and Repositioning: Facilitating a reallocation of resources to better align with the company’s long-term growth and strategic objectives.

Key Components of the Buyback Proposal

The important parameters of the proposed buyback scheme are as follows:

Parameter	Detail
Class of Shares	[Specify the class, e.g., Equity Shares]
Number of Shares	[Specify the maximum number of shares to be bought back]
Buyback Price	[Specify the price per share, with the basis of the calculation]
Maximum Buyback Amount	[Specify the aggregate monetary limit for the buyback]
Funding Sources	[Free Reserves / Securities Premium Account / Proceeds of Issuance]
Buyback Method	[Tender Offer / Open Market Purchase / Other Methods]
Duration of Offer	[Number of days, usually between 15 to 30 days]
Compliance Thresholds	Debt-Equity Ratio not to exceed 2:1; Buyback not exceeding 25% of aggregate of paid-up capital and free reserves (or 10% as applicable for Board resolution)

Procedural Details

To ensure an orderly and efficient implementation of the buyback, the following procedural steps will be adhered to:

1. Approval Process

Special Resolution: For buybacks exceeding 10% of the total paid-up equity capital and free reserves of the company, a special resolution must be passed at the EGM. For smaller buybacks, the Board may approve the transaction through a Board resolution as per the Articles of Association.

2. Documentation and Compliance Requirements

The necessary documents and activities include:

An explanatory statement annexed to the notice detailing the rationale and detailed terms of the buyback.
Filing of a declaration of solvency with the Registrar of Companies and the relevant regulatory authority.
Submission of required forms, including the letter of offer and return forms, as prescribed by the Companies (Share Capital and Debentures) Rules.
Maintenance of a register of shares bought back as per regulatory requirements.

3. Offer Period and Execution

The buyback offer will remain open for a period not less than fifteen days and not more than thirty days from the date of dispatch of the letter of offer. During this period, eligible shareholders may tender their shares in accordance with the prescribed procedure. All shares acquired through the buyback will be physically extinguished within seven days of the offer’s closing date.

4. Post-Buyback Requirements

Once the buyback is completed, the company will:

File a return with the Registrar of Companies and, if applicable, with the Securities and Exchange Board of India, using the designated forms and within the stipulated time frame (typically within 30 days of completion).
Transfer an amount equal to the nominal value of the bought back shares to the Capital Redemption Reserve Account, as mandated by the Companies Act.

Voting, Proxy, and Member Participation

Participation from all shareholders is critical to the success of this resolution. In case a shareholder is unable to attend the EGM in person, the following provisions are made:

Proxy Voting: Shareholders may designate a proxy to attend and vote at the meeting. Proxy forms are enclosed with this notice. It is imperative that the proxy forms be submitted at the company’s registered office no later than 48 hours prior to the commencement of the meeting.
Electronic Voting: Where applicable, electronic voting facilities may be provided as per the requirements laid down in the relevant regulations.
Record Date: The list of eligible shareholders will be finalized as on [Record Date]. Only those shareholders whose names appear in the register as of the record date will be eligible to participate in the buyback.

Declaration of Solvency and Other Legal Disclosures

Declaration of Solvency

The Board of Directors has conducted a thorough inquiry into the company’s financial standing and is of the firm opinion that:

The company is solvent and is capable of meeting its liabilities and obligations as they fall due.
No default exists in the repayment of any deposits, interest payments, dividends, or any other statutory obligations that would prevent the execution of the buyback scheme.

Accordingly, a declaration of solvency in the prescribed form has been duly prepared, executed, and filed with the appropriate authorities.

Legal and Regulatory Compliance

The proposed buyback complies with the following key provisions:

Adherence to Section 68 of the Companies Act, 2013, which authorizes the repurchase of shares using free reserves, securities premium account, or proceeds of any shares issued.
Conformance with the applicable rules for the issuance of explanatory statements and the submission of required forms and certificates.
Maintenance of regulatory thresholds, such as ensuring that the buyback does not exceed 25% of the aggregate of paid-up capital and free reserves (with variations as applicable based on the nature and scope of the resolution).
Ensuring that the debt-equity ratio post-buyback remains within the acceptable threshold (not more than 2:1).

Authorization and Resolution Text

Draft Resolution for Buyback of Shares

The following resolution is being proposed for consideration at the Extraordinary General Meeting:


"RESOLVED THAT, pursuant to the provisions of Section 68, 69, 70 and any other applicable provisions of the Companies Act, 2013, and subject to obtaining all necessary approvals, permissions, and conditions as may be required, the Company is hereby authorized to initiate a buyback of its own fully paid-up equity shares as per the following terms and conditions:
  
1. Class of Shares: [Specify Class, e.g., Equity Shares].
2. Maximum Number of Shares: [Specify Number].
3. Buyback Price: [Specify Price per Share] 
   (with the methodology for determining the price clearly delineated).
4. Maximum Aggregate Amount for Buyback: [Specify Amount].
5. Source of Funds: [Free Reserves / Securities Premium Account / Proceeds from Issuance].
6. Buyback Method: [Specify Tender Offer / Open Market Purchase].
7. Offer Period: Not less than fifteen (15) days and not exceeding thirty (30) days from the date of dispatch of the letter of offer.
8. The buyback shall be completed within one (1) year from the date of passing this resolution.
  
FURTHER RESOLVED THAT the Board of Directors of the Company be and is hereby authorized to finalize the terms and conditions of the buyback, execute all necessary documents in this connection, perform any acts, deeds or things as may be necessary for the implementation of the said buyback, and to do all such acts and things as may be deemed necessary or expedient to give effect to this resolution."

Additional Information and Enclosures

Enclosed with this notice, please find the following documents for your reference and action:

An explanatory statement detailing the rationale, parameters, and legal compliance required for the buyback of shares.
Draft resolution text for the proposed buyback.
Proxy forms for shareholders who wish to appoint a proxy to represent their vote during the meeting.
Detailed instructions regarding the documentation required from shareholders to participate in the buyback (such as tender forms, KYC documents, and details pertaining to dematerialized or physical shareholdings).

Execution and Post-Meeting Procedures

Steps After Resolution Approval

Upon approval of the buyback resolution, the Board of Directors shall initiate the drafting, signing, and dispatch of the letter of offer to all eligible shareholders.
All buyback offers submitted by the shareholders will be evaluated and processed on a proportionate basis as per the approved parameters.
A register of all shares tendered and bought back will be maintained as per statutory requirements, and the bought back shares shall be extinguished within the prescribed timeline.
The Company shall file the requisite returns and compliance certificates with the Registrar of Companies and, if applicable, with the Securities and Exchange Board of India within 30 days of buyback completion.
A transfer equivalent to the nominal value of the repurchased shares will be made to the Capital Redemption Reserve Account in accordance with the regulatory requirements.

Voting and Proxy Procedures

Shareholder participation is highly encouraged. In instances where a shareholder is unable to attend the EGM, voting may be executed via proxy or electronic means where applicable:

Proxy Appointment: A proxy may be appointed by completing and submitting the enclosed proxy form no later than 48 hours before the commencement of the meeting. The appointed proxy, who need not be a member of the Company, will be entitled to attend and vote on your behalf.
Electronic Voting: Should the company opt for electronic voting, detailed guidelines will be provided simultaneously to facilitate a seamless voting process.

Conclusion

In conclusion, the proposed buyback of shares is designed to achieve strategic capital management goals, optimize financial performance, and enhance shareholder value. The detailed notice provided herein is structured to comply with the Companies Act, 2013 and associated rules, ensuring full disclosure, regulatory compliance, and a transparent process. We urge all members to review the enclosed documents carefully, exercise their voting rights through direct attendance or by proxy, and participate actively in the decision-making process to facilitate the smooth execution of the proposed buyback.

References

Learn More

What are the legal implications of share buybacks under the Companies Act 2013?

How does a share buyback affect the company’s financial ratios such as EPS and ROE?

What are the procedural steps and documentation required for executing a buyback of shares?

How are proxy voting and electronic voting implemented in share buyback meetings?