Section 9

Treasury shares
Treasury shares are shares of stock which have been issued and fully paid for,
But subsequently reacquired by the issuing corporation by
1.
2.
3.
4.

purchase,
redemption,
Donation or
Through some other lawful means.

Such shares may again be disposed of for a reasonable price fixed by the board of
directors. (n)
Treasury Shares Status
a. are not retired shares. They do
not revert to the unissued shares
of the corporation but are
regarded as property acquired by
the corporation which may be
reacquired by the corporation
which may be reissued or resold
by the corporation at a price to be
fixed by the BOD.
b. They do not have the status of
outstanding shares, in the sense
they do not constitute a liability of
the corporation. They are not
part of the outstanding capital
stock.
A
corporation
may
eliminate the treasury shares by
reducing its authorized capital
stock. Since they do not lose their
status as issued shares, they
cannot be treated as new issues
when disposed of or reissued.
c. A treasury share or stock may be
common or preferred, may be
used for variety of corporate
purposes i.e. stock bonus plan for
management of employees, or for
acquiring another company. It
may be held indefinitely, resold or
retired. While in the companys
treasury, the stock earns no
dividends and has no vote in
companys affairs.
d. Treasury
shares
versus
authorized but unissued shares:
Acquisition of the Treasury
shares does not reduced the
number of issued shares or the
amount of stated capital stock
and their sale does not increase
the number of issued shares or
the amount of stated capital.

Where acquisition from stockholders

Shares may be acquired by corporation
from stockholders by:
1. Purchase
2. Redemption or
3. Donation or
4. Thru other lawful means
If a corporation Effect
acquires shares
by:
Purchase from
1. A return to
stockholders
them of the
value
of
their
investment
s in the
company
and a
2. reversion
of
the
shares of
the
corporation
HOWEVER, that
corporation must
have surplus with
which to buy the
shares so that the
transaction will not
cause
an
impairment of its
capital
Donation of the
stockholders to
the corporation

Their act would

simply amount to
the surrender of
their stock without
getting back their
investments which
are
instead
voluntarily given to
the corporation

Dividend restriction on retained earnings

GR: a corporation can reacquire its own
shares provided it has an adequate
amount of unrestricted retained earnings
to support the cost of the said shares.

Accordingly, the amount of such

earnings equivalent to the cost of the
treasury shares being held, cannot be
declared and distributed as dividends.
Such restriction can be lifted only after
the treasury shares are reissued or
retired in accordance with law.
Declaration as property dividend
Treasury shares being unrealized
income are NOT considered as part of
earned or surplus profits, and therefore,
NOT DISTRIBUTABLE AS DIVIDENDS,
either in cash or stock.
BUT if there are retained earnings
arising from the business of the
corporation, treasury shares, being the
property of the corporation, may be
distributed as property dividend.
SEC requires that an amount of the
retained earnings equivalent to the cost
of treasury shares be restricted from
being declared as dividends, until said
shares are reissued or retired.
Treasury shares may be declared as
property dividend to be issued out of the
retained earnings previously used to
support their acquisition, PROVIDED,
that the amount of the said retained
earnings has not been subsequently
impaired by losses.
Any declaration and issuance of
treasury shares as property dividend
shall be disclosed and properly
designated as property dividend in the
books of the corporation.
Voting rights
Treasury shares have NO VOTING
RIGHTS as long as they remain in the
treasury, uncancelled and subject to
reissue.
A corporation cannot in any proper
sense be a stockholder in itself, and
shares of its own stock, therefore, held
by it cannot be voted or entitled to vote,
for otherwise, equal distribution of voting
powers among stockholders will be
effectively lost and the directors will be
able to perpetuate their control of the
corporation
Right to dividends
NEITHER are treasury shares are
entitled to dividends or assets because

dividends cannot be declared by a

corporation itself.
Stock dividends may not be declared on
treasury stock even on the express
condition that such dividend shall also
be treated as treasury stock.
So, what right, if any remain? Perhaps
the right of the corporation to reissue its
treasury shares for a valuable
consideration if its charter permits but
this is a mere incident of corporation
which is applicable to unissued as well
as to issued shares.
Treasury shares are no longer part of
the outstanding capital stock.
Resale
They may be sold by the corporation at
any price the BOD sees fit to accept,
even less than par or issued value, the
corporation having already received the
full value upon their initial issuance,
provided such price is reasonable under
the circumstances:
a. Stockholders
may
rightfully
complain if the price is lower than
reasonable
b. In case of sale or reissue, the
treasury shares again become
outstanding stock and regain
whatever dividends and voting
rights they originally held.
c. Treasury shares differ from
retired or cancelled shares in that
while the latter has disappeared
altogether, the former may be
sold. (section 36 (6) expressly
authorizes stock corporations to
sell treasury shares subject to the
provisions of Section 9. Their
status on resale differs from that
of newly created shares which
cannot be issued for less than the
legal minimum consideration.
d. The sale of treasury shares
should be treated as a sale of
ordinary
property
of
the
corporation; hence, the gain
therefrom is subject to TAX. The
PURPOSE of the sale is to
recover the amount paid by the
corporation for said shares.