Treasury shares are shares in a publicly traded company which are registered in the issuing company’s own name. These shares represent a portion of a company which is owned by the company itself.
The term treasury stock typically denotes stock which was repurchased from investors by the company. It may also be used in a broader sense to include stock which the company withheld from its public offerings.
Companies typically repurchase shares from shareholders in order to take shares out of circulation – either temporarily or permanently – in order to reduce supply and drive up the value of stock held by its shareholders. They may also buy shares from shareholders in order to avoid having its 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 and therefore in share value.
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.
In many jurisdictions, treasury shares must be registered shares. This means that the company must be registered as the owner of the shares in the share register.
When treasury shares are sold to investors or employees (as employee shares), they are normally treated as newly-issued shares for tax purposes.