{"id":11219,"date":"2023-12-26T13:01:27","date_gmt":"2023-12-26T13:01:27","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=11219"},"modified":"2024-09-15T15:12:46","modified_gmt":"2024-09-15T14:12:46","slug":"what-are-treasury-shares","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-treasury-shares\/","title":{"rendered":"What are treasury shares?\u00a0"},"content":{"rendered":"<p>Treasury shares are issued shares that a company has repurchased from its shareholders and chosen to retain \u2018in treasury\u2019, instead of immediately cancelling them after the share buyback procedure. There are several reasons why companies hold treasury shares, which we discuss in this post. We also explain the procedure and administrative requirements involved with company shares held in treasury.<span class=\"Apple-converted-space\">\u00a0 \u00a0<\/span><\/p>\n<h2>Holding shares in treasury<\/h3>\n<p>Before 1 December 2003, UK companies were obliged to cancel any shares that they bought back from their shareholders. However, the <a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/2006\/46\/part\/18\/chapter\/6\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">Companies Act 2006 (part 18, chapter 6)<\/a> now allows both private and public companies to make a purchase of their own shares and subsequently hold them \u2018in treasury\u2019 to sell or transfer at a later date.<\/p>\n<p>Subject to the company&#8217;s articles of association, treasury shares can be held indefinitely and cancelled at any time at the company\u2019s discretion. They are still classed as issued share capital and retain the same nominal value, but the rights attached to the shares are suspended because companies cannot hold rights in themselves.<\/p>\n            <div class=\"revolut_shortcode\">\n                <a href=\"https:\/\/revolutbusiness.ngih.net\/daV2kQ\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/revolut_mobile.png\"\n                        alt=\"Revolut Business & Affiliates.\"\n                        class=\"revolut_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/revolut_desktop.png\"\n                        alt=\"Revolut Business & Affiliates.\"\n                        class=\"revolut_shortcode-desktop\">\n                <\/a>\n            <\/div>\n            \n<p>This means that, whilst a company is entered in its own register of members as the holder of the treasury shares, it cannot exercise any rights in respect of those shares, such as:<\/p>\n<ul>\n<li>the right to attend and vote at general meetings<\/li>\n<li>the right to dividends or other distributions or assets<\/li>\n<li>rights of pre-emption<\/li>\n<\/ul>\n<p>The treasury shares (and their associated rights) are essentially put on hold and kept \u2018in storage\u2019 until such time that the company decides to sell or transfer them, but the company\u2019s share capital remains exactly the same.\u00a0If they are later sold or transferred, the rights attached to those shares are reinstated.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>                                                    <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/understanding-limited-company-shares\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Understanding limited company shares<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/company-shares-paid-partly-paid-and-unpaid-explained\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Company shares \u2013 paid, unpaid and partly paid<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/rights-shareholders-of-a-company-have\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">What rights do shareholders of a company have?<\/span><\/a>\n                    <\/p>\n<p>To place shares into treasury, the company must have purchased them from the selling shareholder(s) using the buyback procedure and, typically, paid for the shares in full using post-tax distributable reserves (profits) rather than capital.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>However, under certain circumstances, private limited companies (as opposed to PLCs) can finance small buybacks of shares out of capital using the \u2018<a href=\"https:\/\/assets.publishing.service.gov.uk\/media\/5a817c7940f0b623026978ff\/BIS-15-288_Employee-ownership-share-buy-backs.pdf\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">de minimis\u2019 exemption<\/a>. To qualify for this exemption, the aggregate consideration for any buyback transaction in a financial year must not exceed the lower of \u00a315,000 or the cash equivalent of 5% of the aggregate nominal value of the company\u2019s share capital.<\/p>\n<h2>Advantages of treasury shares<\/h3>\n<p>Holding shares in treasury offers the following advantages to certain companies:<\/p>\n<ul>\n<li>flexibility to retain repurchased shares for future use or cancel them at a later date if they are not required<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>ability to raise cash quickly and easily by selling treasury shares to new investors without the need to carry out an allotment of shares &#8211; the latter of which can be more costly and time-consuming<\/li>\n<li>satisfying <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/share-options-and-share-option-schemes\/\" data-wpel-link=\"internal\">employee share option plans<\/a>, share warrants, and convertible securities without issuing new shares and diluting existing shareholdings<\/li>\n<li>enabling the company to actively manage its <a href=\"https:\/\/www.iwoca.co.uk\/finance-explained\/what-is-wacc\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">weighted average cost of capital<\/a> (WACC)<\/li>\n<li>replenishing distributable profits used to finance a share buyback, which is not possible when repurchased shares are cancelled<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>avoiding the additional administrative requirements of cancelling the shares<\/li>\n<\/ul>\n<p>The use of treasury shares is limited to very particular objectives, so they are more commonly found in public limited companies and large private firms. The average UK private limited company does not typically hold them, but they can be beneficial under certain circumstances.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h2>How to place shares into treasury<span class=\"Apple-converted-space\">\u00a0<\/span><\/h3>\n<p>If you are considering carrying out a share buyback and subsequently holding some or all of the repurchased shares in treasury, there are several steps you need to follow.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h4>Step 1. Check the articles and shareholders\u2019 agreement <span class=\"Apple-converted-space\">\u00a0<\/span><\/h4>\n<p>The very first thing you must do is refer to the company\u2019s <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-articles-of-association\/\" data-wpel-link=\"internal\">articles of association<\/a> and any private shareholders\u2019 agreement that exists.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>The Model articles do not prohibit share buybacks or treasury shares, nor do they stipulate that repurchased shares must be cancelled, but some companies include specific exclusions or restrictions in amended or bespoke articles and\/or within a <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-is-a-shareholders-agreement-and-why-do-i-need-one\/\" data-wpel-link=\"internal\">shareholders\u2019 agreement<\/a>.<\/p>\n            <div class=\"hubspot_shortcode\">\n                <a href=\"https:\/\/hubspot.sjv.io\/OrKdGZ\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/hubspot_mobile.png\"\n                        alt=\"Get Started With HubSpot's Free Tools.\"\n                        class=\"hubspot_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/hubspot_desktop.png\"\n                        alt=\"Get Started With HubSpot's Free Tools.\"\n                        class=\"hubspot_shortcode-desktop\">\n                <\/a>\n            <\/div>\n        \n<p>If any such restrictions or prohibitions are contained within your company\u2019s articles of association, the shareholders will have to pass a special resolution to amend the articles accordingly.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>Where no restrictions exist, the company is free to carry out a share buyback and place shares into treasury for future use.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h4>Step 2. Carry out a share buyback<span class=\"Apple-converted-space\">\u00a0<\/span><\/h4>\n<p>The next step is to carry out a purchase of own shares using the share buyback procedure, as per the requirements of the <a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/2006\/46\/part\/18\/chapter\/4\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">Companies Act (part 18, chapter 4)<\/a>. This process typically involves:<\/p>\n<ul>\n<li>Confirming that the shares the company wishes to buy back are fully paid up<\/li>\n<li>Reviewing the company\u2019s accounts to ensure that it has sufficient distributable reserves to repurchase the specified shares from the selling shareholders<\/li>\n<li>Holding a board meeting to establish the terms of the buyback agreement between the company and selling shareholders, including the quantity and class of shares being sold, the purchase price, and the proposed transaction date<\/li>\n<li>Passing a board resolution approving the proposed share buyback<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>Passing an <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/company-resolutions-different-types-explained\/\" data-wpel-link=\"internal\">ordinary resolution or written resolution<\/a> of the shareholders to authorise the terms of the buyback and approve the transaction<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>Paying the selling shareholder(s) in full and then holding the shares in treasury<\/li>\n<li>Completing and filing Companies House <a href=\"https:\/\/assets.publishing.service.gov.uk\/media\/625027dcd3bf7f601560bab2\/SH03_v6.0.pdf\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">form SH03 &#8211; Return of purchase of own shares<\/a><\/li>\n<\/ul>\n<p>To complete form SH03, you must enter the following information:<\/p>\n<ul>\n<li>Section 1 &#8211; Company registration number and company name in full<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>Section 2 &#8211; Only required if cancelling any repurchased shares<\/li>\n<li>Section 3 &#8211; Details of shares purchased to place into treasury<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>Section 4 &#8211; Stamp Duty liability, if any, or declaration that no Stamp Duty is payable<\/li>\n<li>Section 5 &#8211; Dated signature of the director or other authorising person<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<\/ul>\n<p>The company will be required to calculate, report, and pay Stamp Duty of 0.5% if the share buyback transaction is more than \u00a31,000. If <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/stamp-duty-for-limited-companies\/\" data-wpel-link=\"internal\">Stamp Duty<\/a> is due, the company must make the required payment and then email the completed form SH03 to HMRC to be stamped.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>HMRC will then send a letter to confirm that the Stamp Duty has been paid. Once you have received this stamping confirmation letter, you must submit a copy of it to Companies House along with form SH03.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h4>Step 3. Update the company\u2019s statutory register of members<span class=\"Apple-converted-space\">\u00a0<\/span><\/h4>\n<p>When the repurchased shares are in treasury, you will need to update the company\u2019s <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/register-of-members\/\" data-wpel-link=\"internal\">statutory register of members<\/a> to reflect the changes. You should do this in the same way as a normal transfer of shares, but the company will be listed as the holder of the treasury shares.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>Since the rights attached to the shares are suspended whilst they remain in treasury, the shares should not be taken into account for voting purposes in the company\u2019s PSC register.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>You must also report the change to Companies House when you file your next <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/services\/confirmation-statement\/\" data-wpel-link=\"internal\">annual confirmation statement<\/a>, just as you would with a normal transfer of shares. The public register will then be updated accordingly.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h2>Selling or transferring treasury shares<\/h3>\n<p>Subject to the company\u2019s articles and shareholders\u2019 agreement, you can sell or transfer treasury shares at any time. However, you can only transfer (as opposed to sell) shares held in treasury for the purposes of an employee share scheme.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>In either case, directors are not usually required to obtain prior approval from the company\u2019s members before doing so.<\/p>\n<p>Subject to the company\u2019s articles or shareholders\u2019 agreement, pre-emption rights may apply upon the sale or transfer of shares held in treasury. In such instances, the existing members will have to waive their pre-emption rights or authorise a disapplication of pre-emption rights in the articles.<\/p>\n<p>                                                    <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/transfer-company-shares\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">How to transfer company shares<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/sell-shares-in-private-limited-company\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Can I sell shares in a private limited company?<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/pre-emption-rights-key-to-maintaining-shareholdings\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Pre-emption rights &#8211; the key to maintaining your shareholdings<\/span><\/a>\n                    <\/p>\n<p>Unlike a new issue of shares, you can only sell treasury shares for cash consideration, but they can be transferred without consideration if they are being used for an employee share scheme.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n            <div class=\"names_shortcode\">\n                <a href=\"https:\/\/acn.ionos.co.uk\/aff_c?offer_id=3&amp;aff_id=8964&amp;url_id=309\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/242634_Domains_Banner-Cooperation_QCF_325x340_UK.png\"\n                        alt=\"FREE .co.uk Domain Name.\"\n                        class=\"names_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/242634_Domains_Banner-Cooperation_QCF_980x150_UK.png\"\n                        alt=\"FREE .co.uk Domain Name.\"\n                        class=\"names_shortcode-desktop\">\n                <\/a>\n            <\/div>\n        \n<p>As soon as the shares have been sold or transferred to the new shareholder(s), the suspended rights attached to those shares are immediately reinstated and can be exercised by the new shareholder(s).<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>The company must update the register of members accordingly, issue share certificates to the new shareholders, and complete and deliver Companies House <a href=\"https:\/\/www.gov.uk\/government\/publications\/notify-a-sale-or-transfer-of-treasury-shares-sh04\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">form SH04 \u2018Notify a sale or transfer of treasury shares\u2019<\/a> within 28 days.<\/p>\n<p>Any proceeds from the sale of treasury shares can be treated as realised profits, up to the amount that the company paid for those shares during the buyback procedure. This sum can then be credited to the company\u2019s distributable reserves, but any excess profit made from the sale must be treated as capital and credited to the company\u2019s share premium account.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h2>How to cancel treasury shares<\/h3>\n<p>A company can cancel some or all of its treasury shares at any time, subject to the provisions set out in its articles of association or shareholders\u2019 agreement.<span class=\"Apple-converted-space\">\u00a0 <\/span>By doing so, the company\u2019s issued share capital will be reduced by the nominal value of the cancelled treasury shares.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>To cancel shares held in treasury, you must complete and file Companies House <a href=\"https:\/\/www.gov.uk\/government\/publications\/notify-a-cancellation-of-treasury-shares-sh05\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">form SH05 \u2018Notice of cancellation of treasury shares\u2019<\/a> within 28 days.<\/p>\n<h2>Thanks for reading<\/h3>\n<p>Treasury shares provide greater flexibility and convenience to many UK companies by enabling them to manage certain share transactions in a more efficient and cost-effective manner.<\/p>\n<p>Having the option to repurchase shares and hold them in treasury for an indefinite period of time is particularly beneficial to companies that frequently buy back their own shares to sell to new investors or transfer to an employee share scheme.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>As with any share transaction, professional advice from an accountant is always recommended to ensure the best outcome for your limited company and shareholders.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>If you have any questions about this post, please leave a comment below.<\/p>\n            <div class=\"complete_package__shortcode\">\n                <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/fully-inclusive-package\/\" data-wpel-link=\"internal\">\n                    <img decoding=\"async\"\n                        src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_sidebar.png?v=4\"\n                        alt=\"Fully Inclusive Package\"\n                        class=\"complete_package__mobile\"\n                    \/>\n                    <img decoding=\"async\"\n                        src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_banner.png?v=4\"\n                        alt=\"Fully Inclusive Package\"\n                        class=\"complete_package__desktop\"\n                    \/>\n                <\/a>\n            <\/div>\n        \n"},"excerpt":{"rendered":"<p>Treasury shares are issued shares that a company has repurchased from its shareholders and chosen to retain \u2018in treasury\u2019, instead of immediately cancelling them after the share buyback procedure. There are several reasons why companies hold treasury shares, which we discuss in this post. We also explain the procedure and administrative requirements involved with company&hellip;<\/p>\n","protected":false},"author":28,"featured_media":11249,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[141],"tags":[],"class_list":["post-11219","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shares-shareholders","category-141","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.7 (Yoast SEO v24.7) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Are Treasury Shares? | Quality Company Formations<\/title>\n<meta name=\"description\" content=\"Find out what treasury shares are and why companies hold them. We also explain the procedure and administration in holding shares in treasury.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-treasury-shares\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What are treasury shares?\u00a0\" \/>\n<meta property=\"og:description\" content=\"Find out what treasury shares are and why companies hold them. We also explain the procedure and administration in holding shares in treasury.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-treasury-shares\/\" \/>\n<meta property=\"og:site_name\" content=\"Quality Formations Blog\" \/>\n<meta property=\"article:published_time\" content=\"2023-12-26T13:01:27+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-09-15T14:12:46+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2023\/12\/Shutterstock_2306357295.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1500\" \/>\n\t<meta property=\"og:image:height\" content=\"750\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Amelia French\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Amelia French\" \/>\n\t<meta name=\"twitter:label2\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"8 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What Are Treasury Shares? | Quality Company Formations","description":"Find out what treasury shares are and why companies hold them. 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