Treasury stock

Reacquired stock is also called as treasury stock, is a stock that is repurchased by issuing company, deducting the amount of share outstanding in the stocks and share market. Share buyback is often utilized as tax efficient process in order to put cash into shareholder’s hands, instead of paying dividends.  At times, business organizations do this as they feel that their stocks are undervalued on the open market. And other times, business organizations do this in order to give bonus to incentive return plans for the workers or employees. In stead of receiving cash, the receivers obtain an asset which may encourage in value faster than the money saved in the bank account and other reason for share buyback or stock repurchase is to protect the business organization against a takeover risk or threat.

The UK equivalent treasury stock or repurchased share as used in the US is reacquired share. Treasury stocks in the United Kingdom refer to government gilts or government bonds.

Drawbacks of the Reacquired stock

• Total reacquired stock cannot exceed the maximum proportion of capitalization specified by law in the relevant nation.
• It has no voting rights
• It does not pay a dividend

When stocks repurchased, they might either be held for reissue or cancelled. If it is not cancelled then such types of shares are called as treasury stocks. Generally, a bought back stock is a business organization’s own share which has been repurchased after having been fully paid and issued. The ownership of the treasury stocks or shares does not give the business organization to vote, to obtain assets on business organization liquidation or to get cash dividends, or to use pre-emptive rights like a shareholder.

Questionnaire:

• What is Treasury Stock?
• State the limitations of Treasury Stock?
• What are the reasons for share repurchase?