24 Lecture - Repurchase of Shares – Section 95 A

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24 Lecture

MGT401

Midterm & Final Term Short Notes

Repurchase of Shares – Section 95 A

Section 95 A of the Companies Act 2013 provides for the repurchase of shares by a company. This allows a company to buy back its own shares from the market, either to return capital to shareholders or to prevent hostile takeovers. The section la


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  1. What does Section 95A of the Companies Act 2013 deal with? A) Buyback of shares B) Issuance of shares C) Transfer of shares D) Shareholder meetings Answer: A) Buyback of shares

  2. What is a share buyback? A) The process of buying shares of another company B) The process of buying back shares from the market C) The process of issuing new shares to the public D) The process of transferring shares to another person Answer: B) The process of buying back shares from the market

  3. Who can approve a share buyback under Section 95A? A) Board of directors B) Shareholders C) Both A and B D) None of the above Answer: C) Both A and B

  4. What is the maximum amount of shares that can be repurchased under Section 95A? A) 10% of the total paid-up share capital and free reserves B) 20% of the total paid-up share capital and free reserves C) 25% of the total paid-up share capital and free reserves D) 50% of the total paid-up share capital and free reserves Answer: B) 20% of the total paid-up share capital and free reserves

  5. What is the minimum gap between two share buybacks under Section 95A? A) 6 months B) 1 year C) 2 years D) 3 years Answer: B) 1 year

  6. Can a company buy back shares through private placement under Section 95A? A) Yes B) No Answer: B) No

  7. How should a company pay for the shares purchased under Section 95A? A) Cash only B) Cash or through other modes allowed by law C) Through shares of another company D) Through bank transfer only Answer: B) Cash or through other modes allowed by law

  8. What should be the price of the shares purchased under Section 95A? A) Par value B) Market value C) A premium to the market value D) A discount to the market value Answer: B) Market value

  9. Can a company purchase shares through a negotiated deal under Section 95A? A) Yes B) No Answer: B) No

  10. What should a company do with the shares purchased under Section 95A? A) Cancel the shares B) Hold the shares as treasury stock C) Sell the shares to another company D) Distribute the shares to the public Answer: B) Hold the shares as treasury stock



Subjective Short Notes
Midterm & Finalterm Prepration
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  1. What is a share buyback and why do companies repurchase their own shares? Answer: A share buyback is the process of a company buying back its own shares from the market. Companies may repurchase their own shares for a variety of reasons, such as returning capital to shareholders, improving the return on equity, or preventing hostile takeovers.

  2. What are the restrictions on the amount of shares that can be repurchased under Section 95A? Answer: Under Section 95A, a company can repurchase up to 20% of its total paid-up share capital and free reserves. Additionally, the company must have the necessary funds available for the buyback and cannot exceed its borrowing limits.

  3. Who can approve a share buyback under Section 95A? Answer: A share buyback under Section 95A must be approved by the board of directors and shareholders of the company.

  4. What are the penalties for non-compliance with the provisions of Section 95A? Answer: Non-compliance with the provisions of Section 95A can result in penalties for the company and its officers, including fines and imprisonment.

  5. Can a company purchase shares through private placement under Section 95A? Answer: No, a company cannot purchase shares through private placement under Section 95A.

  6. What is the process for a company to repurchase its own shares under Section 95A? Answer: The company must pass a special resolution approving the buyback, file a declaration of solvency with the Registrar of Companies, and make the necessary disclosures to shareholders and the stock exchange.

  7. What are the tax implications of a share buyback for the company and its shareholders? Answer: The tax implications of a share buyback can vary depending on the specific circumstances. However, in general, the buyback may be subject to capital gains tax for the company and shareholders.

  8. Can a company purchase shares from a specific shareholder under Section 95A? Answer: No, a company cannot purchase shares from a specific shareholder under Section 95A. The buyback must be made from the open market or through a tender offer to all shareholders.

  9. How long must a company wait between two share buybacks under Section 95A? Answer: A company must wait at least one year between two share buybacks under Section 95A.

  10. What is the difference between a share buyback and a dividend distribution? Answer: A share buyback involves a company purchasing its own shares from the market, while a dividend distribution involves a company paying out a portion of its profits to shareholders. A share buyback can provide a tax advantage for shareholders, while a dividend distribution is taxed as income.

Repurchase of shares, also known as share buyback, is a process in which a company buys back its own shares from the market. Section 95A of the Companies Act, 2013 governs the process of share buybacks in India. The section sets out the conditions and restrictions for a company to repurchase its own shares. Under Section 95A, a company can repurchase up to 20% of its total paid-up share capital and free reserves. Additionally, the company must have the necessary funds available for the buyback and cannot exceed its borrowing limits. The buyback must be made from the open market or through a tender offer to all shareholders, and cannot be made from a specific shareholder through private placement. The process for a company to repurchase its own shares under Section 95A involves passing a special resolution approving the buyback, filing a declaration of solvency with the Registrar of Companies, and making the necessary disclosures to shareholders and the stock exchange. Non-compliance with the provisions of Section 95A can result in penalties for the company and its officers, including fines and imprisonment. Additionally, the tax implications of a share buyback can vary depending on the specific circumstances, but in general, the buyback may be subject to capital gains tax for the company and shareholders. While a share buyback can provide a tax advantage for shareholders, it may not always be the best option for the company. Companies must carefully consider the reasons for the buyback and whether it aligns with their long-term goals and objectives. The buyback should not be used as a tool to manipulate stock prices or thwart hostile takeovers. In conclusion, Section 95A of the Companies Act, 2013 provides a framework for companies to repurchase their own shares from the market. The section lays down the conditions and restrictions for the buyback and ensures that it is carried out in a transparent and fair manner. Companies must carefully consider the implications of a share buyback before proceeding with the process.

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