Funds to he used for Buy-back [Sec. 77 A(I). The company

purchases its own securities out of

(0) its frec-reserves,

(b) the Securities Premium Account. .

© the proceeds of any shares cr specified securities issued for the

purpose of buy-back. No buy-back shall be allowed out of the proceeds of earlier issues of the same kind of shares or specified securities. In other words.it means, that equity shares cannot be purchased out of the proceeds of issue of equity shares, already issued. However, equity shares can be purchased outof proceeds of issue of preference shares, issued earlier. .‘Free Resen’c’ means free reserve as defined in explanation (b) to Sec 372A. Accordingly free resenrcs mean those reserves which are free for distribution as dividend as per latest audited balance sheet. These include balance to the credit of Securities Premium Account but shall not include share application many (which is due for refund but has not been encashed).

‘SpeciticJ Securities’ includes ‘Employees Stock Option’ or other securities as may be notified by the Central Government from time to time.

2. Crcation of ‘C’I)ital Redemption Rescn’e Account [See 77A (5»). If a company purchases its own shares or securities out of free reserves, then, a sum equal to the hominal value of shares so purchased shall be transferred to ‘Capital Redemplion Reserve Account’ out of free reserves and its details must be disclosed in the Balance Sheet. The Capital Redemption Reserve is a special type of reserve and it is to be treated as share capital for reduction purposes. This reserve maybe utilised only for issue of fully paid bonus shares.

3. Conditions fol’ Purchase of own Shares [Sec. 77 A (2), (3), md (4).

A company can purchase its own shares subject to the following conditions

(i) Buy-backing its own shares or specified securities should be authorised by the Articles of Association (otherwise. Articles will have to be amended first).

(ii) A special resolution approving buy-back should be passed in the general meeting of the company. .

Notice for convening general meeting at which the special resolution. is to be passed must be accompanied by an explanatory statement containing (0) full and complete disclosure of all material facts of the buy-back, (b) the necessity for buy-back. (c) class of securities to be purchased for this purpose. (d)

the amount involved. and (e) the time limit for completion of buy back.

(i ii)The amount involved in the buy-back should not be less than 25% of share paid up share capital and free reserve.

(iv) The debt: equity (capital + free reserves) ratio, after completion of buy-back should not be more than 2 : 1. However, the Central Government may

permit a higher debt-equity ratio for a class or classes of companies.

Debts for this purpose. includes all secured and unsecured debts.

(v) Shares or other specified securities to be brought back should be fully paid up. Partly paid up shares securities cannot be bought back.

(vi) Shares other specified securities should be listed on any recognised stock exchange and should be in accordance with the SEBI regulations. For this

purpose, the SEBI has notified the SEBI back of Securities) Regulation 1998, As regards unlisted shares and specified securities, the buy-back should be in accordance with the guidelines issued

by (the Central Government) for this purpose, The Central Government has notified the Prh’ate Limited Compan)’ and Unlisted Public Limited COmIHID)’

By virtue of Section 8], the existing equity shareholders

By virtue of Section 8], the existing equity shareholders of a Offer must be made to the present equity shareholders on a pro

rata basis, i.e., in proportion to their shareholdings.

2. The pro-rata offer is to be made by giving a notice specifying the

number of shares offered.

3. The offer must be kept open for a period of at least ]5 days or for

such long period as may be specified in the notice. .

4. The member must also be given the right of renunciation of the

offer in favour of his nominee. unless the articles provide otherwise.

After the expiry of the time specified in the notice aforesaid or on receipt of earlier intimation from the shareholder to whom such notice is given that he

declines to accept the shares offered, the Board of directors may dispose them off in such manner as they think most beneficial to the company.

Offer {)f New Shares to Outsiders-Exceptions to Sec. 81 (See, 81 (A»). According to See 81 (I A), a company may offer shares to the outsiders to the total

exclusion of existing shareholders in any manner vhatsoever. in the following case!i

(i) Where shareholders pass a special resolution in the general meeting that the new shares may be offered to any person without showing any

preference to the existing shareholders; or

(ii) if an ordinary resolution is passed to that effect and approval of the Central Government is obtained on the ground that such an offer is most beneficial

to the company;

(iii) if the new shares are issued within 2 years from the formation of the company or 1 year of the allotment made for the first time.

Holding and Subsidiary Companies

G. Holding and Subsidiary Companies A company which control another company is known as holding company and the company so controlled is termed as subsidiary company. A company is deemed to control another company in each of the following cases(i) ifit cotn,ls the composition of the Board of Directors of another company. The composition of the Board of Directors is said to be controlled by another, if the latter has thl power, without the consent or concurrence of any other person, to appoint or remove the holde.rs of all or a majority of the directorships. [Sec. 4(2)].The control of the composition of the board of directors of another company is more relevant in case of a company limited with guarantee or an unlimited company without share capital.
(ii) if it holds more than 50 per cent of nominal value of equity shares in another company.
In determining the majority holding, the following will not be considered-(a) shares held in fiduciary capacity i.e., in trust for others, (b) shares held or power


exercised by virtue of trust deed of debentures issued by the subsidiary company and (c) shares held by a company as security oloans. advanced by it, if its main business is to lend money [Sec. 4 (3)].
(iii) in the case of a private company in respect softhearted preference shareholders and equity shareholders may enjoy similar voting rights and the holding company itself is a private company, holds more than 50 per cent of its total voting rights;
(iv) A company shall be deemed to be controlling another company, if another company is a subsidiary of the first mentioned company's subsidiary. For example, if company B is a Subsidiary of Company A and Company C is a subsidiary of company B, then company C is also a subsidiary of company

H. One M.m Company or Family Compnny. A company in which one man holds practically the whole of the share capital of a company and takes a few more dummy members (usually his fami,ly members, friends and relatives) simply to meet the statutory requirement of the minimum number of members one more member in case of a private company and 6 or more members in case of a public company), such a company is known as 'one man company' or 'family company'. Such a company is perfectly a legal company in the eyes of law having separate entity, as distinct from the majority shareholders. Solomon's case is relevant in this regard.

Three tier administration of company Law Borad

(1) Central office with head office at New Delhi.
(2) Registrars of Companies in every State.
(3) Four regional offices at Mumbai, Kolkata, Chennai and Kanpur, headed by the Regional Directors. Registrar of Companies (ROC). There is a Registrar


of Companies almost in every State and companies within that State register themselves with the ROC in that State. The office of the ROC is a public
office and companies are required to file their documents and returns. The public is authorised to inspect such documents according to the provisions of
the Company Law. The Regional Directors and the Registrar of Companies function under the control of the Company Law Board.
Advisory Committee. Under Sec 410, the Central Government may appoint, by notification in the official Gazette, an Advisory Committee
consisting of such number of members not exceeding five, as may be notified. The function of the committee is to advise the Central Government on such


matters arising out of the administration of the Companies Act or referred to it by the Central Government or the Board.
Securities and Exchange Board of India. The Securities and Exchange Board ofIndia (SEBI) was set up by the SEBI Act 1992 in order to protect the
interest of innocent investors in securities. To achieve tlus objective the SEBI has issued 'Guidelines for Disclosure and Investor Protection' on 11th June
1992. It has issued guidelines for market intermediaries like stock brokers, registrar to an issue, merchant bankers and underwriters. New consolidated
guidelines for investors-Guidelines for Disclosure and Investor Protection lOOO-have also been issued by it.