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CS Executive · Capital Market and Securities Laws · Buy-Back of Securities

Vimal Textiles Ltd, a listed company, decides to purchase some of its own fully paid equity shares from its shareholders using its free reserves. Under the Companies Act, 2013, what is this transaction called?

The transaction is a buy-back. The Companies Act, 2013 allows a company to purchase its own shares or other specified securities out of free reserves, the securities premium account or proceeds of a fresh issue, subject to the conditions laid down in the Act.

  1. ABuy-back of sharesCorrect
  2. BForfeiture of shares
  3. CSurrender of shares
  4. DRedemption of preference shares

Explanation

The Act describes a company purchasing its own shares or other specified securities out of free reserves, securities premium or proceeds of a fresh issue as a buy-back. Forfeiture and surrender relate to shares being taken back for non-payment or by voluntary giving up, not a purchase for consideration.

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