Company Law Notes for Company Law Notes

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Buy – Back of shares

  • Buy back is the process of purchasing of its own share by company.
  • Purpose of purchasing is to reduce a number of shares in market and to increase the value of shares in market.
  • Repurchase of its own shares for reducing the share capital.
  • The buyback reduces the number of outstanding shares in market.
  • Buy back is restricted or prohibited. Though it is restricted buy back is allowed in some special conditions prescribed by law. Mainly buy back is permitted on following grounds;
  • Why company is willing to buyback, objective must be clear and bona fide.
  • If a company is making profit and if there is sufficient free reserve fund in company.
  • If a company has an idle cash fund.
  • Section 61 of the Companies Act of Nepal has prohibited on purchase by company of its own share.
  • As per section 61(1) of the Companies Act, no companies shall purchase its own shares(buy back) or lend moneys against its securities of its own shares.
  • But section 61(2) has specified some circumstances, where a company may buy back its shares out of its free reserves available for being distributed as dividend, by giving information to the office of the company registrar.( Circumstances; clause ‘a’ to ‘g’ of section 61 (2)) .
  • The process and procedures for getting permission to buy back of shares have been mentioned in section 61(3) clauses ‘a’ to g and subsection ‘4’ to ‘10’ of section 61.

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