Buyback of Shares by Private and Unlisted Companies
A buyback lets a company purchase its own shares from shareholders and cancel them, within the limits of Section 68 of the Companies Act, 2013: authority in the articles, a cap of 25% of paid-up capital and free reserves, completion within one year. We check eligibility, prepare the papers and file SH-8, SH-9 and SH-11 on the MCA V3 portal.
What it is
A buyback of shares is a company paying its shareholders to take back its own shares. The shares are then extinguished, so share capital falls and the remaining shareholders own a larger slice.
The law is in Sections 68 to 70 of the Companies Act, 2013 and Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014. A buyback can be funded only from free reserves, the securities premium account, or the proceeds of an earlier issue of a different kind of shares or securities. Listed companies also follow SEBI’s buy-back regulations; this page covers private and unlisted public companies.
Who it applies to
You have surplus reserves
A profitable company with idle cash can return part of it to shareholders.
A shareholder wants to exit
Think of a Faridabad family company where one branch of the family wants out and nobody else can buy its stake. Here, a buyback of shares offered to all shareholders on a proportionate basis can create that exit.
You want a cleaner cap table
A simpler shareholding before a fundraise, merger or sale.
Conditions you must meet
| Condition | Rule |
|---|---|
| Authority | The articles must permit buyback |
| Approval | Special resolution; board resolution alone if the buyback is 10% or less of paid-up equity capital and free reserves |
| Size | Not more than 25% of paid-up capital and free reserves; for equity shares, not more than 25% of paid-up equity capital in a financial year |
| Debt after buyback | Secured and unsecured debt not more than twice the paid-up capital and free reserves |
| Shares | Fully paid up only |
| Gap | No new offer within one year of the closure of the previous offer |
| Completion | Within one year of the resolution |
Section 70 adds hard bars. No buyback through a subsidiary or an investment company. No buyback while the company is in default on deposits, debentures, preference shares, dividends or bank and institution term loans, unless the default was remedied and three years have passed. And no buyback if the company has not complied with Sections 92 (annual return), 123 and 127 (dividends) and 129 (financial statements).
Why it matters
A clean exit at a fair price
Every shareholder gets the same offer on a proportionate basis, on paper, filed with the ROC.
Tax treatment changed in 2026
From 1 April 2026, buyback proceeds are taxed as capital gains in the hands of shareholders, with an additional tax for promoters.
Mistakes are hard to undo
Once shares are extinguished, a buyback that breached the limits cannot simply be reversed.
Documents required
Financial
- Latest audited financial statements, not more than six months old at the offer
- Auditor’s report on the permissible buyback amount
- Statement of debts and free reserves
Corporate
- MOA and AOA showing buyback authority
- Board resolution and, where needed, special resolution with explanatory statement
- Register of members and shareholding pattern
Offer and filing
- Letter of offer (SH-8), signed by two directors
- Declaration of solvency (SH-9), with affidavit
- Share valuation report supporting the price
How it works
Check eligibility and the limits
We work out the maximum size from audited figures, test the 2:1 debt ratio, and check Section 70 defaults and the articles. In practice, a company with ₹2 crore of paid-up capital and free reserves can buy back up to ₹50 lakh, before the debt test.
Get board and shareholder approval
The board approves it; shareholders pass a special resolution if the size is above 10%. The notice must explain the reason, the class of shares, the amount and the time limit.
File SH-8 and SH-9, then send the offer
The letter of offer in SH-8 and the declaration of solvency in SH-9 are filed with the ROC. The offer goes to shareholders within 20 days of filing and stays open for 15 to 30 days.
Verify acceptances and pay shareholders
Acceptances are verified within 15 days of closure, and payment follows within 7 days of verification. The bought-back shares are extinguished and physically destroyed within 7 days of completion.
File SH-11 and update records
We file the return of buyback in SH-11 within 30 days of completion, write up the register in SH-10, and move the nominal value to the capital redemption reserve where Section 69 requires it.
Timelines
Offer: 20 days to send, 15–30 days open
Dispatch within 20 days of filing SH-8; the offer stays open for at least 15 and at most 30 days.
Payment and cancellation
Verification within 15 days of closure, payment within 7 days of verification, shares destroyed within 7 days of completion.
SH-11 within 30 days
Return of buyback within 30 days of completion; the whole buyback within one year of the resolution.
What happens if the rules are broken
The company and officers face prosecution
Section 68(11) makes the company and every officer in default punishable for non-compliance with the buyback provisions.
Your next share issue waits six months
After a buyback, the company cannot issue the same kind of shares for six months, except bonus shares or conversions of existing obligations. Here is the catch: a fundraise pencilled in for next quarter may have to wait.
A late SH-11 costs more
Event-based forms filed late carry an additional fee of 2× to 12× the normal fee, depending on the delay.
Frequently asked questions
How much can a company buy back?
Up to 25% of its paid-up capital and free reserves, under Section 68(2). For equity shares, the buyback in a financial year cannot exceed 25% of the paid-up equity capital. A buyback of 10% or less needs only a board resolution; anything larger needs a special resolution. Debt after the buyback must stay within twice the paid-up capital and free reserves. We run these numbers before the board meets.
Can a private limited company buy back its shares?
Yes. Section 68 applies to private and unlisted public companies, provided the articles permit it and the Section 68 and 70 conditions are met. An unlisted company also needs an auditor’s report on the permissible amount, based on accounts not more than six months old. Listed companies follow SEBI’s buy-back regulations as well.
How is a buyback taxed from 1 April 2026?
From 1 April 2026, buyback proceeds are taxed as capital gains in the shareholder’s hands, replacing the deemed-dividend rule that applied from 1 October 2024. Promoters also face an additional tax on buybacks, so the exit price should be tested for tax before the board approves it. We prepare the working; your tax adviser or practising CA should confirm each shareholder’s position.
Which forms are filed for a buyback?
Three main forms. SH-8 is the letter of offer and SH-9 the declaration of solvency, both filed with the ROC before the offer goes out. SH-11 is the return of buyback, due within 30 days of completion. If a special resolution is passed, MGT-14 is filed within 30 days too. The register of buyback is kept in Form SH-10. We prepare all of them in sequence.
Can we buy back shares from only one shareholder?
Not under a standard buyback. Section 68(5) allows a buyback from existing holders on a proportionate basis, from the open market, or from employees under specified schemes. An unlisted company uses the proportionate route, so every shareholder gets the offer. Some may decline, which lets one shareholder exit in practice. If only one person is leaving, a share transfer to another buyer may suit better.
When can a company not buy back its shares?
Section 70 bars a buyback through a subsidiary or investment company, and while the company is in default on deposits, debentures, preference shares, dividends or term loans, unless the default was remedied three years ago or more. It also bars a buyback if Sections 92, 123, 127 or 129 have not been complied with. A partly paid share cannot be bought back either.
What is the declaration of solvency?
It is a statement in Form SH-9 that the board has inquired into the company’s affairs and believes it can pay its debts and will not become insolvent within one year of the buyback. At least two directors sign it, one of them the managing director if there is one, and it is verified by an affidavit. It is filed with the ROC before the offer, so directors should sign only on solid numbers.
Do our shares need to be in demat form for a buyback?
For a private company that is not a small company, yes. Rule 9B requires such companies to have promoter, director and key managerial personnel holdings in demat form before any buyback, and bars a buyback while depository fees are unpaid. Since 1 December 2025, a small company is one with paid-up capital up to ₹10 crore and turnover up to ₹100 crore. We can handle the dematerialisation of shares first.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
MCA filing fees for SH-8, SH-9, SH-11 and MGT-14 depend on your authorised capital. A valuation report and the auditor’s report are separate costs.
Ready to begin?
Send us your latest audited accounts and shareholding, and we will tell you how much you can buy back and what it will cost in tax.