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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Orion Ltd, a public company, buys back none of its shares but its promoter group wants to use the company's own funds to acquire control. The promoters propose that Orion buy its own equity shares from the market and hold them without following the capital reduction route. Which statement is correct under section 67 of the Companies Act, 2013?

A company has no power to buy its own shares unless the resulting reduction of share capital is carried out as provided in the Act. The preference share redemption saving applies only to redeeming preference shares, not to open-market purchase of equity shares.

  1. AAllowed, because a limited company may always buy its own shares
  2. BNot allowed, unless the consequent reduction of share capital is effected under the provisions of the ActCorrect
  3. CAllowed if only preference shares are redeemed, as section 67 then does not apply
  4. DAllowed if the shares are bought from a banking company

Explanation

Section 67(1) denies power to buy own shares unless the consequent reduction of share capital is effected under the Act. Section 67(4) preserves redemption of preference shares, which is a separate matter and is not what is proposed here. There is no exemption by seller identity.

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