Treasury Stock

Treasury Stock (aka ‘reacquired stock’) is corporate common stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including also insiders' holdings). These shares don't pay dividends, have no voting rights, and should not be included in shares outstanding calculations.

Why would you want to buy back your corporate stock? There are a few reasons to do that. Stock repurchases are sometimes used as a tax-efficient method to put cash into shareholders' hands, rather than paying dividends, in jurisdictions that treat capital gains more favorably. Sometimes, companies do it when they feel that their stock is undervalued on the open market.

Other times, companies do it to reduce dilution from incentive compensation plans for employees. Another motive for stock repurchase is to protect the company against a takeover threat.

Treasury stock may be created, when shares of a company are initially issued. In this case, not all shares are issued to the founders; some are kept in the company's treasury to be used to create extra cash for corporate coffers should it be needed.

On your balance sheet, treasury stock is listed under shareholders' equity as a negative number. The accounts may be called "Treasury stock" or "equity reduction". You must choose between two options for accounting for treasury stock – the cost method and the par value method.