Updated on March 18, 2023
Treasury stock refers to shares which the company retains with itself. These stocks are part of the initial capital stock issued by the company, but thereafter repurchased from the market. The purpose of maintaining a certain level of treasury stock with itself can vary from company to company.
What are the uses of Treasury Stock?
Few uses of Treasury Stock can be listed as :
1. Raising funds in future – the treasury stock as reserve can act as a corpus for future buyouts or investments
2. Maintaing ownership or control – this is done to prevent any hostile takeover bids
3. Enhancing value – this is done by repurchsing when stock is not doing well in the market
4. Enhancing Company’s financial ratios, like Return on assets, Return on equity
What are the limitations of Treasury Stock?
Some drawbacks of maintaining Treasury stocks are:
1. These stocks are not entitled for dividends
2. They do not have any voting rights
3. They are not part of outstanding shares of the company
4. In the event of liquidation, they do not have entitlement on company’s assets