How a tender-offer buyback works: the small-shareholder reservation and acceptance arithmetic

Most guides to buybacks say that 15% is “reserved for small shareholders” and leave it there. This article goes one level deeper: it reads the actual clauses of the SEBI (Buy-Back of Securities) Regulations, 2018 (consolidated text amended up to 6 July 2026) and walks through the numbers in a real letter of offer filed with SEBI, so you can see how the reserved category, the entitlement ratio and the acceptance of shares are worked out. It describes how the process works. It does not say whether any buyback is attractive, and nothing here is a view on any company or its shares.

The setting: a tender-offer buyback

In a tender offer, a company invites its shareholders, on a record date, to offer shares back to it at a stated price. The regulations define a tender offer as an offer by a company to buy back its own shares through a letter of offer from the holders (regulation 2). A company buys back from existing holders on a proportionate basis (regulation 6). For a recent example of an announcement, see our news report on the Transport Corporation of India buyback (reported terms only). For the wider family of corporate actions, see the corporate actions guide.

Record date and the timeline in the regulations

Step	What the regulations say
Record date	The company announces it in the public announcement. It fixes the shareholders who are eligible and their entitlement (regulation 9(i)).
Letter of offer	Filed with SEBI through a merchant banker within two working days from the record date (regulation 8(i)). No draft letter of offer is filed with SEBI for a tender offer (explanation to regulation 8). Sent to eligible holders electronically, within two working days from the record date, with a physical copy on request (regulation 9(ii) and its explanation).
Offer opens	Not later than four working days from the record date (regulation 9(v)).
Offer stays open	Five working days (regulation 9(vi)).

Entitlement is fixed by the holding on the record date. The company accepts shares on the basis of each holder’s entitlement as on the record date (regulation 9(viii)). The price and number of shares are announced earlier. Until one working day before the record date, the board may raise the maximum price and reduce the number of shares so that the total size does not change (regulation 4(via)).

Who is a “small shareholder”

Regulation 2(i)(n) defines a small shareholder as a holder whose shares have a market value of not more than two lakh rupees. The value is worked out on the closing price on the recognised stock exchange with the highest trading volume in those shares, as on the record date. Two details matter:

• The test uses the record-date closing price, so the number of shares that qualifies depends on that day’s price and differs between companies and buybacks.
• Holdings are clubbed. Under regulation 9(ix), demat accounts are added together where the sequence of PANs matches, and physical folios where the sequence of joint holders’ names matches, so that one investor cannot split holdings to look smaller.

The reserved category

Regulation 6 requires that fifteen per cent of the number of shares the company proposes to buy back, or the number the small shareholders are entitled to as per their shareholding, whichever is higher, be reserved for small shareholders. Regulation 9(ix) then divides the shares to be bought back into two categories: the reserved category for small shareholders and the general category for everyone else, and each holder’s entitlement is calculated within their own category.

So there are two ways to size the reserved portion:

1. 15% of the shares to be bought back, or
2. small shareholders’ share of the eligible shares, applied to the buyback size (their holding divided by total eligible shares, times the shares to be bought back).

The larger of the two is the reserved portion. The rest is the general portion.

If a promoter or promoter group member has declared that it will not take part, regulation 4(iv)(a) says its shares are not counted when computing the entitlement ratio.

A real document: PVR INOX letter of offer

The letter of offer of PVR INOX Limited (record date 4 September 2026, offer of up to 20,68,965 shares at Rs 1,450 per share) shows the arithmetic with actual numbers. These figures are taken from the filing and are shown as an example of the method only.

Step	Figure in the letter of offer
Closing price on NSE on the record date	Rs 1,227.20
Maximum shares for a small shareholder	162 shares (Rs 2,00,000 divided by the price is about 162.97, so 162 whole shares)
Small shareholders	2,31,584 holders with 54,13,225 shares in total
Option 1: 15% of 20,68,965	3,10,345 shares
Option 2: small holders’ proportion	54,13,225 divided by 9,81,99,962 times 20,68,965, about 1,14,051 shares
Reserved portion (the higher)	3,10,345 shares
General portion	17,58,620 shares

The letter then gives each category an entitlement ratio. Dividing the reserved portion by the small shareholders’ holdings gives 3,10,345 / 54,13,225 = about 5.73% (the filing states 5.7330888703%). For the general category it divides the general portion by the shares held by all other holders: 17,58,620 / (9,81,99,962 minus 54,13,225) = about 1.90% (the filing states 1.8953355370%). The filing also gives rounded ratios of 9 shares for every 157 held (reserved) and 21 for every 1,108 held (general), and notes that applying them can differ slightly from the exact percentage because of rounding. Fractions of an entitlement are ignored, so in this filing a small shareholder with 17 or fewer shares had a zero entitlement.

The ratio is a limit on what can be tendered “as of right”. A holder may tender more than their entitlement (called additional shares).

How acceptance is worked out

Regulation 9(x) sets the order. First, shares tendered up to each holder’s entitlement are accepted, in each category. Then, if shares are still left to be bought back in a category, they are accepted in proportion to the shares tendered over and above entitlement by holders in that category. If shares are still left after that, they are taken proportionately from holders in the other category who tendered above their entitlement.

The PVR INOX letter shows how one company turned this into a procedure. Within the reserved category: full acceptance up to the lower of entitlement and shares tendered; then one share each for small holders with zero entitlement who tendered additional shares; then proportionate acceptance of the remaining additional shares. Each proportionate figure is the holder’s additional shares tendered, divided by all additional shares tendered in that category, times the shares still to be accepted. Where the result is not a whole number, that letter rounds a fraction of 0.50 or more up and anything below 0.50 down. That rounding rule comes from the company’s letter of offer, not from the regulation text, so another company’s letter may differ. The letter also states that acceptance cannot exceed either the shares tendered or the shares held on the record date.

An illustrative example (invented numbers)

A company has 10,00,000 eligible shares and proposes to buy back 50,000 (5%). Small shareholders together hold 1,00,000 of the eligible shares.

1. 15% of 50,000 = 7,500. Small holders’ proportion: 1,00,000 / 10,00,000 x 50,000 = 5,000. The higher figure is 7,500, so the reserved portion is 7,500 shares and the general portion is 42,500.
2. Reserved-category ratio: 7,500 / 1,00,000 = 7.5%. General-category ratio: 42,500 / 9,00,000 = about 4.72%.
3. A small shareholder holding 200 shares has an entitlement of 200 x 7.5% = 15 shares.
4. Suppose that holder tenders all 200 shares. Suppose small holders in total tendered only enough within their entitlements for 4,500 shares to be accepted, leaving 3,000 shares in the reserved category, and that 12,000 additional shares were tendered by small holders as a group, including this holder’s 185 (200 tendered minus 15 entitled).
5. Proportionate acceptance of additional shares: 185 / 12,000 x 3,000 = 46.25, which rounds down to 46 under the convention in the PVR INOX letter.
6. Shares accepted from this holder: 15 + 46 = 61 of 200 tendered.

The unaccepted 139 shares stay with the holder. The key point is that acceptance depends on what every other holder tenders, so the outcome is known only once the offer closes and the registrar publishes the basis of acceptance. Tendering does not guarantee acceptance, and this article does not suggest whether to tender.

Where to find the numbers for a specific buyback

The letter of offer is the document to read. Under Schedule III of the regulations it must state the record date and the buyback ratio for each category, and the cover page must show the entitlement ratio for small and general shareholders along with a link to the registrar’s website where a holder can check their entitlement. The letter of offer is filed with SEBI (regulation 8(i)); the PVR INOX one used here is on the SEBI website.

Basis of these figures

Regulatory points are from the consolidated text of the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 labelled “amended up to July 06, 2026” on the SEBI website: regulations 2(i)(n), 2(i)(q), 4(iv)(a), 4(via), 6, 8, 9(i), 9(ii), 9(v) to 9(x) and Schedule III. Company figures are from the PVR INOX Limited letter of offer (record date 4 September 2026), paragraphs 21.6 to 21.12, as filed with SEBI; the percentages shown as “about” are our own arithmetic on those figures and match the filing’s. The hypothetical company in the example is invented; its numbers carry no meaning for any real company. The rounding convention and ratio formulas are one company’s method, not a rule in the regulation. Regulations can be amended, so check the current text. The PVR INOX registrar’s final acceptance announcement was not reviewed. This article explains a process and carries no view on any buyback or company.