Share buyback is a corporate action wherein a company undertake to buy its own shares from the shareholders of the company issuing a tender offer or arranging for a private buyback from a shareholder(s). Few important reasons for buyback is returning money to shareholders, consolidation of company ownership, giving investors exit, saving the company from hostile takeover and so on. Buyback also reflects sound financial position of the company, thus making it more attractive for investors.
What does the law states about buyback of shares in Singapore?
Section 76B of the Companies Act, Singapore states that a company will not be able to purchase or otherwise acquire shares issued by it unless the charter of the company permits it do so. Hence, it is very important to check the Constitution of the company and if required to modify it so as to allow such buy back.
For certain class of securities there is a maximum buy back limit of 20% of total number of securities of that class. Anything more than that should take court’s approval. Also a company may buy back its shares out of its share capital or profits as long as its directors are of the view that the company will remain solvent after the buyback.
What shall the notice of Buy back state?
For off market purchases, the purchases shall be made with an equal access scheme authorised in advance by the company in general meeting. The notice for the general meeting shall:
– contain the maintain number of shares or percentage of ordinary shares that the company can buyback;
– maximum price to be paid by the company for such acquisition of shares. The maximum price so determined can be either done by specifying a particular price or providing the basis of calculation formula through which such price can be determined
– specify a due date by which the power to buyback shall last. Such due date shall be a date not extending the date of AGM or the last date by which AGM should have been held, whichever is earlier;
– mention the source of funds that shall be used and the impact on the company’s financial position.
So, what does Equal access to scheme mean?
– offers made for the purchase or acquisition of issued shares shall be made to every person who holds issued shares to purchase or acquire the same percentage of their issued shares;
– all of those persons shall be given a reasonable opportunity to accept the offers made; and
– the terms of all the offers are the same, except that there shall be disregarded:-
(i) differences in consideration attributable to the fact that offers may relate to shares with different accrued dividend entitlements;
(ii) (if applicable) differences in consideration attributable to the fact that offers relate to shares with different amounts remaining unpaid; and
(iii) differences in the offers introduced solely to ensure that each person is left with a whole number of shares.
What are the effects of Buyback?
Share purchased as such or acquired may be cancelled immediately on purchase or acquisition. On Cancellation, certificates in respect such buyback of shares shall be cancelled and destroyed by the Company as soon as possible with settlement of any such purchase and all rights and privileges attached to such shares shall expire on cancellation.
Filing with ACRA
The filing for such buy-back / reduction in share capital shall done with ACRA. The company must submit information with ACRA via BizFile+ within 8 weeks of the resolution date. The capital reduction will only take effect when ACRA has recorded the reduction information in the register.
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