What is 'TREASURY STOCK / TREASURY SHARES'?
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Answer Posted / ashrita
Treasury stock is any shares issued by a corporation that
have been repurchased by the company and are currently not
offered for sale to investors. The stock is not considered
to be outstanding, although the shares remain active and
may be resold by the corporation at some future date. There
is no time limit on how long a company may hold on to
treasury stock.
A company may choose to collect treasury stock for several
reasons. Repurchasing issued shares of stock is often a way
to counter a takeover attempt. By re-acquiring enough
shares of issued stock, the company can effectively prevent
a corporate raider from buying enough shares to initiate a
takeover bid. If successful in preventing the hostile
takeover, the company may be able to purchase any shares in
the control of the raider and then begin to reissue the
shares to other investors.
Another common application of treasury stock is to provide
a foundation for stock option programs for executives and
other employees of the company. In the case of an Employee
Stock Option Plan (ESOP), shares of one class of stock may
be repurchased and converted into another class in order to
comply with the terms of the plan. Once converted, the
shares are no longer considered treasury stock, and carry
any privileges specified by the structure of the ESOP.
At its discretion, a company may choose to hold onto
treasury stock for an indefinite period of time. While in
the possession of the corporation, the stock is stored in
the treasury of the company. The company can also elect to
cancel or retire the shares, if this is determined to be in
the best interests of the corporation. Any action that
releases the shares of stock from the company treasury
change the status of the shares. This means shares that are
retired or reissued for purchase are no longer considered
treasury stock.
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