Calculation for Buy Back of Shares
A company may purchase its own shares or other specified securities out of—
- its free reserves (including surplus in P&L account)
- the securities premium account
- the proceeds of the issue of any shares or other specified securities
However, no buy-back of any kind of shares can be made out of the proceeds of an earlier issue of the same kind of shares.
Data of Company:
| S. No. | Particulars | Amount (in Rs.) |
| 1. | Equity Share Capital (675000 shares of Rs. 10/- each | 67,50,000 |
| 2. | Free Reserves including Securities Premium | 28,64,31,715 |
| 3. | Debt (secured plus unsecured) | 5,00,00,000 |
| 4. | Offer Price | 430 |
Limits of Buy Back/Maximum Number of Shares can be bought back:
- RESOURCE TEST:
- If through Special Resolution:
Paid-up Share Capital + Free Reserves (including Securities Premium) x 25% = No. of Shares
Offer Price
As per Example: 67,50,000 + 28,64,31,715 / 430 x 25% = 1,70,454 shares
- If though Board Resolution:
Paid-up Share Capital + Free Reserves (including Securities Premium) x 10% = No. of Shares
Offer Price
As per Example: 67,50,000 + 28,64,31,715 / 430 x 10% = 68,181 shares
- SHARES OUTSTANDING TEST:
25% of Paid-up Equity Share Capital in one Financial Year
Paid-up Equity Share Capital x 25% = No. of Shares
Face Value of Shares
As per Example: 67,50,000/10 x 25% = 1,68,750 shares
Compare the Point 1 and 2, the Lowest Number of Shares between 1 and 2 is the limit of Maximum Number of Shares the Company can buy-back
After ascertaining the Number of Shares to be bought-back, Check the Additional Condition Number 3.
- POST BUY BACK DEBT-EQUITY RATIO TEST: Secured and Unsecured Debt
Paid-Up Capital and its Free Reserves
Debt-Equity Ratio shall not be more than 2 that means Debt cannot be more than twice of paid-up capital and its free reserves.
As per Example: We have chosen 1,68,750 shares to be bought back So the Paid-Up Capital Post Buy Back will be 67,50,000 – 16,87,500 = 50,62,500
Free Reserves Post Buy back will be 28,64,31,715 – (1,68,750 x 430) = 21,38,69,215
So Secured and Unsecured Debt = 5,00,00,000
Paid-Up Capital and its Free Reserves 21,89,31,715
Which is Okay as Debt being less than twice of paid-up capital and its free reserves.
