Buying of company’s own stock from open market in order to reduce the number of outstanding shares. It is one of the prominent modes of capital restructuring. It is a corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than market price.
When it buys back, the number of shares outstanding in the market reduces. By reducing the number of shares outstanding in the market, buy-backs increase the proportion of shares a company owns.
A company whether public or private, may purchase its own shares (hereinafter referred to as “buy-back”) out of:
(i) its free reserves; or
(ii) the securities premium account; or
(iii) the proceeds of any shares or other specified securities.