Page 88 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Sukhpreet Kaur, LPU Unit 4: Buy Back of Securities by Private Limited and Unlisted Public Limited Companies

Unit 4: Buy Back of Securities by Private Limited and Notes
Unlisted Public Limited Companies

CONTENTS
Objectives

Introduction
4.1 Meaning of Buy Back
4.2 Funds for Financing Buy Back
4.3 Circumstances where Buy Back is not Allowed
4.4 Escrow Account
4.5 Summary
4.6 Keywords

4.7 Review Questions
4.8 Further Readings
Objectives

After studying this unit, you should be able to:
 Explain the meaning of buy back
 Understand funds for financing buy back

 Define escrow Account
 Describe the issue of bonus shares

Introduction

Share capital is a very essential part of a company, listed or unlisted. Share capital can be of two
types i.e. equity share capital or preferential share capital. The share capital of a company has to
be subscribed by one or more persons. After the share of a company has been allotted to the
subscribing members, the subscribers have no right over the money gone as proceeds of the
shares subscribed. All that the shareholder has is the right to vote at the general meetings of the
company or the right to receive dividends or right to such other benefits which may have been
prescribed. The only option left with the shareholder in order to realise the price of the share is
to transfer the share to some other person.
But there are certain provisions in the companies act which allow the shareholders to sell their
shares directly to the company and such provisions are termed as buy back of shares. Buy back
of shares can be understood as the process by which a company buys its share back from its
shareholder or a resort a shareholder can take in order to sell the share back to the company.

4.1 Meaning of Buy Back

Buy back of securities simply implies purchase of its own shares by the Company. Till the issue
of these Rules, buy back of shares was prohibited under the law and by introducing section 77A
by Companies (Amendment) Act, 1999, effective from 31.10. 1998.

LOVELY PROFESSIONAL UNIVERSITY 81