The buy back of unlisted shares is governed by rules which may be called the Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999. These rules shall be applicable to buy back of unlisted shares or other Specified securities of a Private Limited Company and Unlisted Public Limited Company not listed on any recognized stock exchange. Buy back of unlisted shares is possible by either of the following methods:- (a) From the existing shareholders on a proportionate basis through private offers; (b) By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity. Filing of letter of offer A company after passing special resolution shall before the buy back of unlisted shares, file with the Registrar of Companies a draft letter of offer containing particulars specified in Schedule II. The Company shall file along with the letter of offer a declaration of solvency in Form No. 4A, prescribed under the Companies (Central Government’s) General Rules and Forms, 1956 and in accordance with provisions of sub-section (6) of section 77A of the Companies Act, 1956. Offer procedure (1) The letter of offer shall be despatched immediately after filing with Registrar of Companies but not later than 21 days from its filing with Registrar of Companies. (2) The Offer for buy back shall remain open to the members for a period not less than 15 days and not exceeding 30 days from the date of despatch of letter of offer. (3) In case the number of shares offered by the shareholders is more than the total number of shares to be bought back by the company, the acceptance per shareholder shall be on proportionate basis. (4) The company shall complete the verifications of the offers received within 15 days from the date of closure of the offer and the shares lodged shall be deemed to be accepted unless a communication of rejection is made within 21 days from the closure of the offer. Payment to the shareholder (1) The Company shall immediately after the date of closure of the offer open a special bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the buy-back in terms of these rules. (2) The company shall within 7 days of the time specified in sub-rule (4) of rule 6 make payment of consideration in cash or bank draft/pay order to those shareholders whose offer has been accepted or return the share certificates to the shareholders forthwith. General obligations of the company (1) The company for buy back of unlisted shares shall ensure that:- a) the letter of offer shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accept the responsibility for the information contained in such document; b) the company shall not issue any shares including by way of bonus till the date of the closure of the offer under these rules; c) the company shall confirm in its offer the opening of separate bank account testifying the availability of funds earmarked for this purpose and pay the consideration only by way of cash or Bank draft/pay order; d) the company shall not withdraw the offer once the draft letter of offer has been filed with the Registrar of Companies; and e) the company shall not utilise any money borrowed from Banks/Financial Institutions for the purpose of buying back its shares. Return to be filed with Registrar A company, after the completion of the buy back of unlisted shares under these rules, shall file with the Registrar a return in the Form specified at Annexure ‘A’. Extinguishment of Certificate (1) The company shall extinguish and physically destroy the share certificates so bought back in the presence of the Company Secretary in whole time practice within 7 days from the date of acceptance of the shares. (2) The company shall furnish a certificate to the Registrar of Companies duly verified by (a) two whole-time directors including the Managing Director and (b) Company Secretary in whole time practice, certifying compliance of these rules including those specified in sub- rule (1) above within 7 days of the extinguishment and destruction of the certificates. (3) The company shall maintain a record of share certificates which have been cancelled and destroyed within 7 days of buy-back of shares. Register of shares The company shall maintain a Register of shares bought back by the Company in the Form specified at Annexure ‘B’.