Treasury shares are shares in a publicly traded company which have been taken out of circulation by means of a stock buyback.
Companies repurchase shares from shareholders in order to take shares out of circulation – either temporarily or permanently. Companies may do this in order to reduce supply and drive up the value of stock held by their shareholders, or in order to reinvest excess cash for tax purposes. They may also buy shares from shareholders in order to avoid having shareholders sell stock to an acquiring company and thus avert a possible hostile takeover.
Repurchasing shares from shareholders also provides a way for companies to reduce their cash reserves by reinvesting money into the company, thus avoiding unnecessary taxation. However, reducing cash reserves by using cash to repurchase stock can lead to a decline in dividends, which can make shares less attractive to investors. If a company uses loans to buy back its shares, the resulting debt can also make the company less attractive for investors.
In Switzerland, treasury shares can make up a maximum of 10% of a company’s share capital, based on their nominal value. Treasury shares do not entitle their holder (the issuing company) to shareholders rights such as voting rights or dividends.
A company may choose to reissue treasury stock as common stock and offer it to the public through a public offering. A company may do this in order to raise capital by taking advantage of demand for its stock. Companies may also reissue treasury shares as employee shares offered through a direct share purchase program. When treasury shares are sold to investors or employees, they are normally treated as newly-issued shares for tax purposes
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