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

Zenith Polymers Ltd, an unlisted company, wants to buy back its own shares. Which of the following is a permitted source of funds for the buy-back under the Companies Act, 2013?

The securities premium account is a permitted source. A company may buy back out of free reserves, securities premium, or proceeds of an issue of other shares or specified securities, but not out of the proceeds of an earlier issue of the same kind of shares.

  1. AIts securities premium accountCorrect
  2. BFresh unsecured loans from promoters repayable on demand
  3. CProceeds of an earlier issue of shares of the same kind
  4. DCapital redemption reserve created for redeeming debentures only

Explanation

Section 68(1) allows buy-back out of free reserves, the securities premium account, or proceeds of an issue of shares or other specified securities. The proviso bars use of proceeds of an earlier issue of the same kind of shares, so the third option is wrong. Promoter loans are not a listed source.

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