Buyback of Shares by Private Limited Company under Companies Act, 2013: Step-by-Step Procedure

Buyback of shares is a commonly used as corporate restructuring tool that allows a company to purchase its own shares from existing shareholders. For private limited companies, buyback is governed primarily by Section 68 of the Companies Act, 2013, along with related rules.

This article provides a practical, step-by-step procedure for buyback of shares by a private limited company, along with key conditions and compliance requirements.

Buyback refers to the purchase by a company of its own shares from its shareholders.

👉 Objectives:

• Return surplus funds
• Improve EPS and financial ratios
• Increase promoter holding

⚖️ Legal Provisions Governing Buyback

Buyback is regulated under:

• Section 68 of Companies Act, 2013
• Rule 17 of Companies (Share Capital and Debentures) Rules, 2014

✅ Key Conditions for Buyback

Before initiating a buyback, ensure the following:

• Articles of Association (AOA) authorizes buyback
• Maximum limit:
  • 25% of paid-up equity capital and free reserves
• Debt-equity ratio after buyback ≤ 2:1
• Only fully paid-up shares can be bought back
• No default in:
  • repayment of deposits
  • interest, debentures, term loans

🧾 Modes of Buyback (Private Company)

• From existing shareholders on proportionate basis
• From employees (ESOP)

🚀 Step-by-Step Procedure for Buyback of Shares

Step 1: Check Articles of Association

Ensure AOA permits buyback.

👉 If not:

• Amend AOA first

Step 2: Hold Board Meeting

• Approve buyback proposal
• Decide:
  • Number of shares
  • Buyback price
  • Record date

👉 If buyback ≤ 10%:

• Board Resolution sufficient

👉 If >10% (up to 25%):

• Special Resolution required

Step 3: Pass Special Resolution (if applicable)

• Convene General Meeting
• Pass Special Resolution
• File MGT-14 with ROC

Step 4: File Letter of Offer (Form SH-8)

• Prepare offer letter
• File with ROC

Step 5: Declaration of Solvency (Form SH-9)

• File before buyback
• Signed by at least 2 directors

Step 6: Dispatch Offer Letter

• Send to shareholders
• The offer remains open for a minimum of 15 days

Step 7: Acceptance of Shares

• Receive acceptance from shareholders
• Verify and finalize list

Step 8: Open Separate Bank Account

• Deposit total buyback consideration

Step 9: Payment to Shareholders

• Make payment within prescribed time

Step 10: Extinguishment of Shares

• Shares must be destroyed within 7 days of completion

Step 11: File Return of Buyback (Form SH-11)

• File within 30 days of completion

⚠️ Post-Buyback Restrictions

• No further issue of same kind of shares for 6 months
  (except bonus, ESOP, conversion)

🔗 Tax Implications (Important Reference)

Taxation of buyback has undergone significant change.

👉 Read our detailed guide on:
Buyback of Shares FY 2026-27: Capital Gains Tax & Promoter Tax Explained

📞 Need Assistance with Buyback Compliance?

Buyback involves multiple filings, legal checks, and timelines.

At Legnex Solutions, we assist with:

• Drafting resolutions and documentation
• Filing SH-8, SH-9, SH-11
• End-to-end compliance management

👉 Contact our team for smooth and compliant execution of buyback transactions.

Q1. Can a private limited company buy back shares?
Yes, subject to compliance with Section 68 of the Companies Act, 2013.

Q2. Is a special resolution mandatory for a buyback?
Required if buyback exceeds 10% of paid-up capital and free reserves.

Q3. What is the maximum limit of buyback?
25% of paid-up equity capital and free reserves.

“Have questions on buyback taxation? Drop them in the comments below.”