Treasury Stock Law and Legal Definition
Treasury stock refers to stock that has been repurchased by the issuing company. These shares do not pay dividends, have no voting rights, and should not be included in shares outstanding calculations. Treasury stock or shares may be purchased by the corporation, or reacquired through donation, forfeiture, or some other method. It is then regarded as the personal property of the corporation and part of its assets. The corporation can sell the stock for cash or credit, for par value or market value, or upon any terms that it could be sold by a stockholder. Treasury stock is also called reacquired stock or treasury shares.
Treasury stock can be created for the following reasons:
- To provide an alternative to paying taxable dividends, since the decreased amount of outstanding shares increases the per share value and often the market price;
- To provide for the exercise of stock options and warrants and the conversion of convertible securities;
- For countering a tender offer by a potential acquirer;
- To alter the debt-to-equity ratio by issuing bonds to finance the reacquisition of shares; as As a result of the stabilization of the market price during a new issue.