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Pankaj Arora (Learner) (3134 Points)

20 June 2011

What is treasury stock and why company creates trust for hold treasury stock well I know little bit that in Indian law parent or subsidiary company can not hold its shares but will you please tell me in detail?

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gayatri (ASSOCIATE) (27 Points)
Replied 20 June 2011

treasury stock is stock which is bought back by the issuing company form the open market, reducing the amount of outstanding stock.Treasury stock does not pay a dividend. Treasury stock has no voting rights. By creating a trust, it becomes easy for the company to manage and deal with the treasury stock.

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Pravin Gupta CS (trainee) (789 Points)
Replied 20 June 2011

A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market

Limitations of treasury stock

Treasury stock does not pay a dividend
Treasury stock has no voting rights
Total treasury stock can not exceed the maximum proportion of total capitalization specified by law in the relevant country

When shares are repurchased, they may either be canceled or held for reissue. If not canceled, such shares are referred to as treasury shares. Technically, a repurchased share is a company's own share that has been bought back after having been issued and fully paid.

>>Benifit is that; In an efficient market, a company buying back its stock should have no effect at all on its stock price.

>>On the balance sheet, treasury stock is listed under shareholder equity as a negative number. The accounts may be called equity reduction or contra-equity.