The challenge of treasury shares

• Jurisdiction: South Africa
• Pages: 151-164
• Author: Farouk HI Cassim
• Citation: 2010 Acta Juridica 151
• Date: 15 August 2019
• Published date: 15 August 2019

The challenge of treasury shares

FAROUK H I CASSIM*

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. Treasuryshares 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.

I INTRODUCTION

Treasury shares are indeed a masterpiece of legal magic, the creation of

something out of nothing....Theirexistence as issued shares is a pure f‌iction,

a f‌igure of speech to explain certain special rules and privileges as to their

issue.

1

Insofar as treasury shares are concerned the mood has changed and we

have been left behind. Treasury shares are legally recognised and sanc-

tioned in Malaysia, Indonesia, Hong Kong, Singapore, the United

Kingdom and the Member States of the European Union, all of which

acknowledge the usefulness of treasury shares. Are we ready to take up the

challenge of treasury shares? Is there any commercial value to be gained in

allowing companies to have treasury shares?

Treasury shares are shares issued by a company and thereafter reac-

quired by the company by way of a share repurchase,

2

but neither

* LLB (cum laude) LLM (Mark of distinction) (London), HDip Company Law (Witwa-

tersrand), Professor of Law,University of Johannesburg, Advocate.

1

Henry Winthrop Ballantine Ballantine on Corporations (rev ed) (1946) para 260 at 615.

2

Or by way of a surrender, donation or other similar method.

151

2010 Acta Juridica 151

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