What Is Treasury Stock: Complete Definition & Explanation

Corporations acquire shares of their own stock for several reasons:
(1) to use their shares to acquire another corporation,
(2) to purchase shares to avoid a hostile takeover of the company,
(3) to reissue them to employees as compensation, and
(4) to maintain a strong market for their stock or to show management confidence in the current price.



A corporation’s reacquired shares are called treasury stock Corporation’s own stock that it reacquired and still holds., which is similar to unissued stock in several ways:

(1) neither treasury stock nor unissued stock is an asset,
(2) neither receives cash dividends or stock dividends, and
(3) neither allows the exercise of voting rights.

However, treasury stock does differ from unissued stock in one major way: The corporation can resell treasury stock at less than par without having the buyers incur a liability, provided it was originally issued at par value or higher.

Treasury stock purchases also require management to exercise ethical sensitivity because funds are being paid to specific stockholders instead of all stockholders. Managers must be sure the purchase is in the best interest of all stockholders. These concerns cause companies to fully disclose treasury stock transactions.