Good news for Paytm shareholders, company is keen to buyback shares

As announced recently by One97 Communications, the parent company of Paytm, the board's meeting will be held on December 13 to take a further stance on the proposal of a share buyback. With the recent buyback plan, it increased 6.88 percent on Friday.

Share buybacks are also known as "share repurchases." As the name suggests, the process involves a publicly traded firm that purchases its own shares from the company's shareholders. Over a period of time, the strategy reduces the number of open market shares that are still existing and leads to an increase in the value of the remaining shares.

A corporation provides its shareholders with a tax-efficient incentive through buybacks, as shareholders are not required to pay tax on the profits made during a share repurchase since the corporation pays the tax. "Cash in abundance" is the driving force behind the repurchase deal, and the situation with Paytm is quite exceptional. Despite funding the buyback with money from prior rounds of funding, the currently loss-making company acknowledged that shareholders will get the benefits of repurchasing stocks. 

The company repurchases its own shares from its shareholders over a competitive bidding process on a proportional basis, as well as from other parties in the open market, stock exchanges, or odd-lot holders. Any buyback can only be up to 25% or less of the total of the company's paid-up capital and free reserves.

A total of 56 companies, including Infosys, Bajaj Auto, ACC, and TCS, opted for share repurchases in 2022.