Q. We currently hold a number of our company's shares in Treasury. Are there any restrictions on what we can do with them or any other considerations we should be aware of?
A: The Treasury share regime is set out in Chapter 6, Part 18 of the Companies Act 2006 and essentially permits shares held in Treasury to be used in four ways:
1. Simply held temporarily or indefinitely (s724(3)(b);
2. Sold for cash consideration (s724(3)(b) and s727(1)(a));
3. Transferred in satisfaction of awards under equity incentive schemes (s724(3)(b) and s727(1)(b)); and
4. Cancelled (s724(3)(b) and s729(1).
The interpretation of "cash consideration" is strict and is set out in s727 of the Companies Act 2006. It means, for example, that Treasury shares cannot be used as consideration in an acquisition.
There is currently no limit on the number of its shares a company can hold in Treasury, although the Investment Association discourages premium-listed companies from holding more than 10% of their shares in this way. Shares can only be bought into Treasury from a shareholder and out of distributable profits.
It should be noted that a company cannot receive dividends on its shares held in Treasury but can receive bonus shares resulting from them (this ensures that its own interests in the shares are not diluted).
In order to buy shares into Treasury, a company needs to ensure that its Articles permit the purchase of its own shares without requiring them to be cancelled.
There are disclosure requirements on listed companies, including AIM listed entities, around the purchase, holding and disposal of Treasury shares via RNS, on the Company's website and in its Annual Report.
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