Buyback of Shares under Companies Act, 2013: Procedure
A buyback is a company purchasing its own shares from its shareholders and cancelling them. Under Section 68 of the Companies Act, 2013, a company can buy back up to 10% of its paid-up equity capital and free reserves with a board resolution, and up to 25% with a special resolution of shareholders. The buyback must be completed within one year of the resolution, and a return in Form SH-11 is filed with the Registrar within 30 days of completion.
For a private or unlisted public company, a buyback is one of the cleanest ways to return surplus cash, give an exit to an outgoing co-founder or investor, or consolidate the shareholding of a family business. It also reduces share capital without going to the Tribunal, which a formal capital reduction under Section 66 requires.
The rules are strict, though. The money must come from specified sources, the company must stay solvent and within a debt limit afterwards, and the filings must follow a set order. This guide walks through the procedure for unlisted companies step by step.
Applicability
Any company limited by shares, private or public, can buy back its fully paid-up shares or other specified securities if its articles of association permit it. Unlisted companies follow Sections 68 to 70 and Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014. Listed companies follow the same sections plus the SEBI Buy-back Regulations, which replace Rule 17 for them.
A buyback can be made in three ways:
from existing shareholders on a proportionate basis (the usual route for private companies);
from the open market (relevant only to listed companies); or
from employees, by buying back shares issued under an ESOP or sweat equity scheme.
A company cannot buy back its shares through a subsidiary or an investment company, and cannot buy back while it is in default on deposits, debentures, preference shares, dividends or bank and institutional term loans (Section 70). The bar lifts once the default is remedied and three years have passed.
Legal framework
Provision | Purpose |
Section 68, Companies Act, 2013 | Power to buy back, sources of funds, limits, approvals, timelines, register and return |
Section 69 | Transfer of the nominal value of shares bought back to the Capital Redemption Reserve |
Section 70 | Situations in which a buyback is prohibited |
Section 179(3)(b) and Section 117 | Board power to authorise a buyback; filing of resolutions in MGT-14 |
Rule 17, Companies (Share Capital and Debentures) Rules, 2014 | Letter of offer, declaration of solvency, offer period, payment, register and return for unlisted companies |
SEBI (Buy-back of Securities) Regulations, 2018 | Additional procedure for listed companies |
FEMA (Non-debt Instruments) Rules, 2019 | Pricing and reporting where a non-resident shareholder sells shares back |
Limits and conditions at a glance
Condition | Requirement |
Authority | Articles of association must permit buyback |
Board route | Up to 10% of total paid-up equity capital and free reserves; resolution at a board meeting, not by circulation |
Shareholder route | Up to 25% of total paid-up capital and free reserves, by special resolution |
Equity cap per year | Equity shares bought back in a financial year cannot exceed 25% of total paid-up equity capital |
Sources of funds | Free reserves, securities premium, or proceeds of a fresh issue of a different kind of shares or securities |
Debt-equity | Secured and unsecured debt after the buyback cannot exceed twice the paid-up capital and free reserves |
Securities | Only fully paid-up shares or securities |
Gap between offers | No fresh offer within one year of the closure of the previous offer |
Completion | Within one year of the board or special resolution |
Lock-out on fresh issue | No fresh issue of the same kind of shares for six months after completion, except bonus issues and existing obligations such as ESOPs or conversions |
Step-by-step procedure (unlisted company)
Step | What to do | Form / document | Timeline |
1 | Check the articles; if they do not permit buyback, alter them by special resolution | Special resolution; MGT-14 | Before the buyback resolution; MGT-14 within 30 days |
2 | Compute the permissible amount from audited (or recent) financial statements and test the debt-equity limit | Working papers; auditor's report on the computation | Before the board meeting |
3 | Hold a board meeting to approve the buyback (up to 10%) or recommend it to shareholders (above 10%); approve the draft letter of offer and the declaration of solvency | Board resolution | — |
4 | Where above 10%, send notice of the general meeting with an explanatory statement giving the purpose, class and number of shares, price and its basis, maximum amount, time limit and promoter holdings | Notice; special resolution; MGT-14 | Normal notice period; MGT-14 within 30 days of the resolution |
5 | File the letter of offer and the declaration of solvency with the Registrar | SH-8 and SH-9 (with affidavit and auditor's report) | Before the offer is sent to shareholders |
6 | Send the letter of offer to all shareholders of the class | Letter of offer | Within 20 days of filing SH-8 |
7 | Keep the offer open and receive acceptances with share certificates or demat transfer | Tender forms | Offer open for 15 to 30 days from dispatch (shorter only if all members agree) |
8 | Open a separate bank account and verify the offers | Bank account; verification record | Verification within 15 days of closure; offers deemed accepted if no rejection within 21 days |
9 | Pay the consideration, or return the certificates of rejected offers | Payment; return of certificates | Within 7 days of the verification period |
10 | Extinguish and physically destroy the shares bought back; update the register of members and the depository | Destruction record; corporate action with the depository | Within 7 days of the last date of completion |
11 | Enter details in the register of securities bought back | Register in Form SH-10 | On completion |
12 | Transfer the nominal value to the Capital Redemption Reserve where funds came from free reserves or premium | Accounting entry | On completion |
13 | File the return of buyback with the Registrar | SH-11 with compliance certificate in SH-15 | Within 30 days of completion |
Forms, fees and filings
Form | Purpose | Time limit | Fee basis |
MGT-14 | Special resolution (and alteration of articles, if any) | Within 30 days of the resolution | Normal fee under the Registration Offices and Fees Rules |
SH-8 | Letter of offer | Before dispatch to shareholders | Normal fee under the Fees Rules |
SH-9 | Declaration of solvency, signed by two directors (one being the managing director, if any) | With SH-8 | Normal fee under the Fees Rules |
SH-10 | Register of securities bought back | Kept at the registered office | Not filed |
SH-11 and SH-15 | Return of buyback and compliance certificate | Within 30 days of completion | Normal fee; additional fee for delay |
A private company that approves a buyback only through a board resolution does not file MGT-14 for that resolution, because private companies are exempt from filing Section 179(3) board resolutions. Many practitioners also file SH-8 on the board route as a matter of caution.
Documents checklist
Articles of association showing authority to buy back (or the altered articles)
Audited financial statements, and interim statements if the audited ones are old
Auditor's report on the permissible amount and the board's solvency opinion
Board resolution, and the special resolution with explanatory statement where needed
Letter of offer signed by two directors
Declaration of solvency with the directors' affidavit
Tender forms, share certificates or demat transfer instructions from accepting shareholders
Bank account details and payment proofs
Destruction record for physical certificates and depository corporate action confirmation
Register in Form SH-10 and the compliance certificate in Form SH-15
For non-resident sellers: valuation report and the authorised dealer bank's documentation
Common mistakes and practical tips
Counting the wrong reserves. Free reserves exclude revaluation reserves and unrealised gains. Compute the 10% and 25% limits on the right base before fixing the size.
Ignoring the debt test. A company with large borrowings may fail the 2:1 limit after cash leaves. Run the test on post-buyback numbers.
Board approval by circulation. The board route needs a resolution at a duly held meeting. A circular resolution does not satisfy Section 68.
Treating it as a private deal. Even when only one shareholder wants to exit, the offer must go to all holders of the class on a proportionate basis. A selective purchase from one person needs a different structure.
Missing the six-month lock-out. Plan any fundraise so that no fresh issue of the same kind of shares falls within six months of completion.
Non-resident shareholders. Where a non-resident sells back, the price must meet the FEMA pricing rules and the transfer is reported to the authorised dealer bank. Start the bank's documentation early, as remittance often sets the real completion date.
Consequences of non-compliance
A default under Section 68 makes the company liable to a fine of ₹1 lakh to ₹3 lakh, and every officer in default to a fine of the same range (Section 68(11)). Late filing of MGT-14, SH-8, SH-9 or SH-11 attracts additional fees, and a failure to file a resolution in MGT-14 is a separate default under Section 117. A buyback made in breach of Section 70, or outside the limits and sources in Section 68, can be challenged as an unauthorised reduction of capital. Delayed payment to shareholders also exposes directors to claims from the selling shareholders.
FAQs
Can a private limited company buy back its shares?
Yes. Any private company can buy back fully paid-up shares if its articles permit it, following Section 68 and Rule 17.
How much can a company buy back without shareholder approval?
Up to 10% of its total paid-up equity capital and free reserves, with a resolution passed at a board meeting. Anything above that, up to 25%, needs a special resolution.
Can a company buy back shares from just one shareholder?
Not under the proportionate route. The offer must be made to all shareholders of the class in proportion to their holdings, though others may choose not to tender.
How long does a buyback take?
For an unlisted company, the process usually takes six to ten weeks from the board meeting, depending on whether a general meeting is needed. The law allows up to one year from the resolution.
What is the time limit for filing SH-11?
SH-11 is filed within 30 days of completing the buyback, together with the compliance certificate in Form SH-15.
How are buyback proceeds taxed?
Currently, the shareholder is taxed on the gain as capital gains, and the company pays no separate buyback tax; promoters face a higher effective rate. The treatment has changed twice in recent years, so confirm it with a tax adviser before fixing the price.
Conclusion
A buyback is a flexible exit and capital-management tool for unlisted companies, but it works only within Section 68's limits on size, funding, debt and timing. Fixing the permissible amount first, keeping the offer proportionate and filing SH-8, SH-9 and SH-11 in sequence keep the process clean.
Disclaimer: This article is for general information and knowledge-sharing only and does not constitute legal advice. Provisions are as on 30 October 2026; please refer to the latest law or consult a professional before acting.
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