Is buyback a reduction of capital?

Zerodha (Trade with the best stock broker)

Invest brokerage-free Equity Delivery and Direct Mutual Funds (truly no brokerage). Pay flat Rs 20 per trade for Intra-day and F&O. Open Instant Account and start trading today.

The share buyback is not ideally a scheme of capital reduction. The result of buyback leads to temporary capital reduction. This is because the number of shares post-buyback gets reduced.

The two main differences between the reduction of capital and share buyback:

  • A capital reduction scheme requires approval from NCLT and the shareholders do not have a choice.
  • In a buyback, there is no requirement of any approval from NCLT. The buyback is voluntary for the shareholder.

Buyback of shares is the replacement of capital. As per the Companies Act, a company is required to utilize free reserves and securities premium reserves and transfer the funds to a Capital Redemption Reserve (CRR) account for the issue of bonus shares in the future.


Add a public comment...