What are Treasury Shares? Guide for Singapore Companies
Shares hold a vital role in equity ownership and the growth of a company. Amongst the various classes of shares, treasury shares are stocks that have been reacquired by their company and provide several benefits.
If you are a private company owner who wants to know more about treasury shares and how they work, this article is for you.
In this article, we will cover:
What are Treasury Shares?
Typically used as a form of reserved stock to raise funds or pay for future investments, treasury shares are ordinary shares that have been repurchased and repossessed by their company. The shares can be held by a company for an indefinite period of time, sold, transferred or cancelled.
How are treasury shares different from other types of shares?
Unlike more common types of shares like ordinary and preference shares, treasury shares do not provide holders with any voting rights or the ability to receive dividends from the company.
In spite of these limitations to shareholders, treasury shares prove to be a useful tool from a company’s perspective. This will be discussed further below.
What are the Benefits of Treasury Shares?
Treasury shares act as a safeguard for the ownership of a company. By repossessing shares, a company can defend itself from hostile takeovers. This can happen if, for example, company A threatens to gain control of company B by buying company B’s shares. In such an event, company B can repossess its shares and hold them as treasury shares. This is done to reduce the number of shareholders who are able to sell their shares, which may make the takeover more difficult to accomplish.
Additionally, by reducing the number of shares in the company and holding these shares as treasury shares, companies can improve financial ratios like the proportion of earnings per share.
What Can Companies Do With Treasury Shares?
As mentioned, a company may sell, transfer or cancel its treasury shares.
Though they usually hold little value, treasury shares can be listed in the open market and sold to investors for cash consideration.
Your company can use the capital raised to fund investments or buy out competing businesses.
Transferring shares to employees
Another route that your company may take is transferring shares to employees. This may be part of an employee stock option plan, in which employees are given the right to purchase company shares. Doing so increases the ownership an employee has in the company and is a strategy for companies to retain talent. You can find out more about employee stock option plans in Singapore in this article.
Once treasury shares are transferred, they become ordinary shares and hold the same powers like the right to vote in meetings.
When a company cancels its shares, it simply declares those share certificates attached to the shares to be null and void, reducing the overall number of shares accordingly.
Companies that wish to cancel, sell or transfer their treasury shares are required to go to BizFile+ to lodge the “Notice of Cancellation or Disposal of Treasury Shares under S76K” transaction with ACRA. The cancellation, sale or transfer of treasury shares will take effect only once ACRA has updated the electronic register of members of the company.
Is There a Maximum Number of Treasury Shares that a Company May Have?
If your company has only one class of shares, the number of treasury shares it can hold must not exceed 10% of the total number of shares at that specific time.
Even if a company is in possession of shares of different classes, the cap on the number of treasury shares held remains at 10%.
Should your company exceed the 10% limit, the excess shares must be disposed of or cancelled within 6 months. This 6-month period begins on the day on which the limit was exceeded. ACRA may extend the disposal and cancellation period in some cases, but the bottom line is that your company will have to remove any extra treasury shares that exceed the 10% limit.
What Happens After a Company has Reduced the Number of Treasury Shares in Its Possession?
Once treasury shares have been cancelled, they are permanently retired and may not be reissued at a later date. Consequently, the shares are no longer listed in the company’s financial statements.
In contrast, non-retired treasury shares can be redistributed through stock dividends, employee compensation, or capital raising.
How Can People Check the Number of Treasury Shares that the Company Has?
Knowing the number of treasury shares may be of interest to shareholders.
Interested parties can check the number of treasury shares that a company has via the company’s business profile which can be obtained from the BizFile+ website.
Treasury shares can play an integral role in the strategic planning of a company. For example, they can be invested to solidify a company’s position in its industry by acquiring competitors or used as a financial reserve.
Should you need help in deciding what to do with your treasury shares, you may want to engage a corporate services firm to advise you on the best course of action for your company. Their trained professionals will be able to help you with the seamless filing of any relevant transactions on BizFile+, prepare necessary documents for share transfers, as well as settle any other documents that may arise in your transactions.
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