24 Jul, 2025
4 mins read
Treasury stocks—once a niche topic—are now a growing focus in regulatory discussions. As Indian companies increasingly engage in share buybacks, the Securities and Exchange Board of India (SEBI) has tightened its stance to ensure transparency and protect shareholder interests.
This blog explores what treasury stocks are, how they appear on a company's balance sheet, the difference between treasury and common stock, and what SEBI’s new regulations mean for listed firms and investors.
Treasury stock refers to shares that a company has issued and subsequently bought back from the open market. These shares are held by the company itself, and are not considered when calculating earnings per share or dividends.
Unlike shares held by promoters or institutions, shares in treasury do not carry voting rights or dividend entitlements. Companies typically buy back shares for the following reasons:
To consolidate ownership
To boost financial ratios like earnings per share (EPS)
To use shares for employee compensation or merger deals
However, these same shares can potentially be misused to manipulate ownership or avoid shareholder dilution—hence the need for tighter regulatory scrutiny.
On the balance sheet, treasury shares are listed as a contra equity account—they reduce the total shareholders’ equity. They are recorded at the cost at which they were repurchased, not at their current market value.
For example:
If a company repurchases 1 lakh shares at ₹100 each, ₹1 crore is deducted from equity.
These shares remain on the books until cancelled or reissued.
While buying treasury stock may improve per-share metrics in the short term, excessive buybacks can weaken a company’s capital base and reduce liquidity, making the role of regulatory oversight all the more crucial.
|
Feature |
Treasury Stock |
Common Stock |
|---|---|---|
|
Ownership |
Held by the company itself |
Held by external investors |
|
Voting Rights |
No |
Yes |
|
Dividend Eligibility |
Not eligible |
Eligible |
|
Balance Sheet Treatment |
Reduces shareholders' equity |
Part of issued capital |
|
Market Presence |
Not traded publicly |
Actively traded on exchanges |
The core difference lies in who owns the shares. While common stock is an active representation of shareholder ownership, treasury stock is a passive asset the company holds, often awaiting cancellation or redistribution.
In 2024, SEBI introduced stringent guidelines on treasury stock handling, especially concerning buybacks and corporate restructurings. The key updates include:
Restriction on holding treasury shares after buyback: Companies must extinguish repurchased shares within a defined timeframe—typically within 7 days of buyback completion.
Limits on treasury stock reissuance: Shares held in treasury cannot be reissued or used for new capital raising without explicit regulatory clearance.
Prohibition in merger schemes: Companies can no longer use treasury shares for merger swaps or promoter-level restructuring without SEBI’s nod.
These steps aim to curb the misuse of treasury holdings for indirect promoter control, inflated valuations, or skewed shareholding structures.
SEBI’s crackdown on treasury stocks addresses growing concerns around corporate governance. In the past, some companies used these shares to:
Avoid dilution during mergers
Fund ESOPs without adequate disclosures
Retain control without increasing promoter shareholding
By limiting the strategic use of shares in treasury, SEBI is strengthening investor protection and enforcing fair market practices. This also aligns Indian corporate policy more closely with global standards, where strict rules govern treasury share usage.
Several Indian companies have adjusted their policies to comply with SEBI’s evolving stance:
Tata Consultancy Services (TCS): Extinguished its buyback shares promptly and disclosed treasury actions in its filings.
Infosys: Clearly separated treasury stock impact from equity and used transparent disclosures in investor reports.
L&T: Avoided using treasury shares in merger deals post-SEBI’s 2024 circular.
These examples show a broader industry shift toward transparency and proactive compliance.
As Indian companies continue to mature in their capital management practices, treasury stocks are likely to stay under the regulatory lens. SEBI’s evolving guidelines reflect a push for better governance, transparency, and alignment with investor interests.
For businesses, this means more disciplined handling of treasury shares on the balance sheet. For investors, it ensures fewer chances of misuse and more clarity in corporate actions.
Understanding the new rules is now essential—not just for CFOs and compliance officers, but for anyone investing in Indian listed companies.
Treasury stock refers to shares that a company has repurchased and holds in its own books. These shares do not carry voting rights or dividends.
They are shown as a negative or contra equity entry, reducing total shareholders’ equity. They are recorded at the repurchase cost.
Common stock is held by public or institutional investors and carries voting rights. Treasury stock is held by the company and does not offer ownership rights or dividends.
To prevent misuse in corporate restructuring, ensure shareholder fairness, and enforce transparency in capital management practices.
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