Quick Summary
Treasury Stock represents the company's own shares that have been reacquired but not cancelled.
Treasury Stock (also called Treasury Shares) refers to outstanding shares that a company has repurchased from shareholders and holds in its treasury. These shares are not considered outstanding and do not pay dividends or have voting rights.
How Treasury Stock Arises
- Share buyback programs
- Purchase from the open market
- Shares surrendered in mergers
- Shares acquired under employees' stock schemes
Accounting Treatment
- Recorded at cost of acquisition
- Shown as deduction from equity (not as asset)
- Reduces total shareholders' equity
- Can be reissued at different price
Uses of Treasury Stock
- Reissue to employees under ESOP
- Issue for acquisitions
- Cancel to reduce share capital
- Resell in open market
Impact on Financials
- Reduces outstanding shares (increases EPS)
- Improves financial ratios
- Signals management confidence
- Alternative to dividend payments
Regulatory Limits (India)
Under Companies Act and SEBI regulations:
- Buyback not exceeding 25% of paid-up capital
- Debt-equity ratio not to exceed 2:1 post buyback
- 15% of buyback from public in open market
Key Points
- Company's own repurchased shares
- Not considered outstanding
- No dividends or voting rights
- Shown as equity reduction
- Can be reissued or cancelled