Treasury Stock Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Treasury Stock, written in plain English, along with examples of how it is used.

What is Treasury Stock?

It is referred to the stock which was issuesd by the company and then re-acquired by the company itself to reduce the stock in the open maket. These shares do not pay dividends and have no voting rights.In the balance sheet these are reflected as reduced from the actual shareholders equity. In United kingdom, the treasury stock is known as debt stocks like govenment bonds and gilts.

History and Meaning of Treasury Stock

Treasury stock refers to the shares of stock that have been issued by a company and then bought back and held by the same company. This process results in a reduction of the number of outstanding shares available in the open market. These shares do not pay dividends nor have any voting rights attached to them. The treasury stock is reflected in the balance sheet as a deduction from shareholders’ equity. In the United Kingdom, treasury stock is known as debt stocks, such as government bonds and gilts.

Treasury stock is often repurchased by a company to indicate that its board of directors has confidence in the company's financial strength or that the shares of the company have been undervalued by the market. It can also be used as a financial tool to pay out dividends, or to leverage the company by reselling the stocks in the open market, increasing the stock price and benefiting shareholders.

Examples of Treasury Stock

  1. A company buys back 50% of its outstanding stock and retains it as treasury stock to limit its availability in the market.
  2. A company uses treasury stock to pay a dividend to its shareholders.
  3. A company buys back its own stock in order to indicate its confidence in the company's financial health.

Legal Terms Similar to Treasury Stock

  1. Equity: A term used to represent ownership in a company, reflecting the amount of assets available to shareholders.
  2. Common stock: A unit of ownership in a corporation that gives the shareholder voting rights and a right to a pro-rata distribution of profits.
  3. Preferred stock: A unit of ownership in a corporation with preferential treatment when it comes to dividend distributions or in a liquidation event.