Share Buyback Compliance — SH-8, SH-9, SH-10 (Unlisted Companies)

Section 68(1) of the Companies Act, 2013: companies may buy back their own shares from free reserves, securities premium account, or proceeds of a fresh issue. Section 68(2): conditions — Articles authorisation, 25% cap, post-buyback debt-to-equity ratio not exceeding 2:1, board resolution (up to 10%) or special resolution (above 10%), and ROC filings current. Section 68(4): Declaration of Solvency required. Section 68(7): Return of buyback to be filed within 30 days of completion. Section 69: sums used for buyback to be transferred to Capital Redemption Reserve. Section 70: restrictions — no buyback within 1 year of preceding buyback, no default on repayment of deposits/interest/preference dividends/debentures outstanding. Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014: Form SH-8 (Letter of Offer), Form SH-9 (Declaration of Solvency certified by practising CA), Form SH-10 (Return of Buyback). Rule 17(3): CA certification on SH-9 confirming solvency opinion.

A buyback of shares is a corporate transaction in which a company purchases its own shares from its existing shareholders, typically to return surplus cash, improve earnings per share, or provide an exit route to investors. For unlisted companies, share buybacks are governed by Sections 68 to 70 of the Companies Act, 2013, read with the Companies (Share Capital and Debentures) Rules, 2014. Section 68(2) stipulates the key conditions for a buyback: the buyback must be authorised by the Articles of Association; the buyback cannot exceed 25% of the aggregate of paid-up capital and free reserves in a financial year; and the post-buyback debt-to-equity ratio must not exceed 2:1. Additionally, a buyback cannot be made within one year of the closure of a preceding buyback, and the company must have filed all reports and returns due to the Registrar of Companies before proceeding.

The mechanics of a buyback by unlisted companies involve several statutory forms. The first is Form SH-8 — the Letter of Offer — which is the formal communication to shareholders setting out the buyback offer price, the quantity of shares proposed to be bought back, the sources of funding (free reserves, securities premium account, or proceeds of fresh issue as per Section 68(1)), and the schedule of the buyback. Before the Letter of Offer is issued, the board of directors must pass a resolution authorising the buyback (if the buyback does not exceed 10% of paid-up capital and free reserves, a board resolution suffices under Section 68(2)(a); if it exceeds 10%, a special resolution of shareholders is required). Simultaneously, Form SH-9 — the Declaration of Solvency — must be filed with the Registrar. This declaration, signed by two directors including the managing director and certified by a practising Chartered Accountant, confirms that the board has made full inquiry into the company's affairs and has formed an opinion that the company is capable of meeting its debts as they fall due and will not be rendered insolvent by the buyback. This CA certification under Rule 17(3) of the Companies (Share Capital and Debentures) Rules, 2014 is a mandatory deliverable of the CA firm advising on the transaction. Upon completion of the buyback, Form SH-10 — the Return of Buyback — must be filed with the ROC within 30 days of the completion of the buyback, containing details of the shares bought back, consideration paid, and extinguishment of the share certificates.