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Reduction of Share Capital and Buy- Back of Shares

Authors: Vanshika Garg and BLN Shivani, Students, Amity Law School, Noida, India

Abstract

Share capital depicts the financial position of a company. Any company which has limited shares or is limited by guarantee having a share capital can buy its own securities, irrespective of it being a public company, private company etc. Share buy-back is a financial strategy which allows a company to buy-back its equity shares and securities from the shareholders. This leads to a reduction in share capital. A company when suffering from heavy financial burden opts for the reduction of share capital. There are few other alternatives too. Section 66 of the Companies Act 2013 deals with the provisions in this regard. Both the concepts of reduction of share capital and buyback of shares have evolved over the years. We will also look into various case laws to understand the provisions more carefully. There is a penalty clause also attached to this. Buyback of shares is simply a mode for the reduction of share capital. The advantages and disadvantages and the reasons for which such processes are adopted have also been discussed. The difference between the Act of 1956 and 2013 in respect of the reduction of share capital and the buyback of shares is necessary to understand in this respect comprehensively. This paper tries to analyse the meaning of both the concepts in detail that are reduction of the share capital and the buyback of shares. Also, we will find out how a company carries out share buyback and the procedure for reduction of share capital.

Keywords: Share Capital, Buyback, Financial Aspects.

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