In finance, the term buy back or buyback refers to the purchase of a company’s shares by the issuing company itself.
Corporations typically use buy backs to increase the value of their shares by decreasing the number of shares available on the stock market.
Reducing the number of shares in circulation lowers the supply of that stock, which typically leads to increased demand. It may also increase the voting rights of individual remaining shares. In this way, stock buybacks achieve the exact opposite effect of that achieved by stock dilution.
The total number of shares which make up a company are determined by its authorized share capital as defined in its corporate statutes. However, the company is not required to offer its shares to the general public. It may issue a portion of its shares to the public via an initial public offering (IPO) and possible subsequent offerings. The company may also issue shares to its employees as part of its employee benefits plan or through a direct share purchase plan.
When a company buys back its own shares from its shareholders, the shares which are bough back are known as treasury shares, or collectively as treasury stock.
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