VC GLOSSARY

Treasury stock is the portion of shares that a company itself owns. It’s separate from any shares being owned by investors, including individuals who are officers or employees of the company.

Treasury stock can consist of shares that were never issued to the public. Most often, it’s made up of repurchased shares (from the shares outstanding).

Treasury stock is sometimes called treasury shares. It can also be called reacquired stock, as it’s often bought back from shareholders.

Treasury stock stays in the company’s possession. Some or all of the shares may be:

• Resold in the future to shareholders
• Retired and permanently taken out of market circulation

Treasury stocks don’t offer voting rights or pay distributions. However, they do limit outside ownership. Treasuring stock can be used in a number of different ways, including:

• As a form of reserved stock that’s set aside to raise money for things like future investments or even acquiring another company.
• To drive up the price of shares — since the remaining outstanding shares will each be worth more.
• To prevent hostile takeovers. By having fewer shareholders, it’s harder for buyers to get enough stock to hold a majority ownership position.
• To have enough stock available to offer stock options to high-value employees.

A company should ideally buy back stock when it thinks its shares are underpriced. This benefits their shareholders. However, if the shares are overpriced, the company harms its shareholders by buying back shares.

Treasury stock is not an asset. Instead, it’s listed on the balance sheet as a negative number under shareholders’ equity. It’s normally called either “treasury stock” or “equity reduction.” At present, treasury stock is carried at historical cost, though some accountants think it should be listed at the current market value of the shares.

Treasury stock refers to the shares of a company that the company retains. These shares may be shares that were never offered to the public or shares that the company reacquired from shareholders. Treasury stock is useful for a variety of reasons, such as avoiding a hostile takeover or to drive up the share price.

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