n Acta Juridica - The challenge of treasury shares : corporate formation and corporate finance : part I




Treasury shares are shares repurchased by a company which, instead of being cancelled on their re-acquisition, are held by the company until reissue or resale. The US Model Business Corporation Act (1979) has rendered treasury shares redundant by requiring re-acquired shares to be restored to the status of authorised but unissued shares or, in certain circumstances, to be cancelled and eliminated from authorised shares. The South African Companies Act 71 of 2008 follows the Australian, New Zealand and Canadian approaches in requiring re-acquired shares to be cancelled on their re-acquisition except where a subsidiary acquires shares in its holding company, which it may do up to a maximum of ten per cent in the aggregate of the issued shares of its holding company.Yet, recently, the distinct advantages of treasury shares have become more apparent, particularly in the flexibility which they afford to companies in managing their capital structure and in adjusting their ratio of debt and equity. Treasury shares also enable companies to reduce or avoid the cost of raising new capital and are also useful for employee share schemes. Treasury shares are currently permitted - in Singapore, Malaysia, the United Kingdom and the European Union. The experience of the United Kingdom demonstrates that complex legislation to curtail the potential abuse of treasury shares is unnecessary. All that is required in order to reap the much needed flexibility which treasury shares would inject into our developing economy are a few simple and surprisingly uncomplicated statutory provisions.


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