What are treasury shares?
Treasury shares are shares issued by a company and subsequently acquired or held by that same company. In practice, they are often described as own shares or shares bought back by the issuer. The concept is particularly relevant for joint-stock companies, including Polish joint-stock companies (S.A.), listed companies, and companies planning corporate reorganisations, incentive schemes or share capital transactions.
Treasury shares do not operate in the same way as shares held by an ordinary shareholder. Because the company cannot act as a regular member of itself, the rights attached to treasury shares are restricted. Under Article 364 of the Polish Commercial Companies Code, a company generally cannot exercise share rights from its own shares, except for rights aimed at disposing of them or preserving those rights. This affects voting, dividend participation and corporate control analysis.
In Polish law, the acquisition of own shares is not freely available in every company and in every situation. For a joint-stock company, Article 362 of the Polish Commercial Companies Code sets out specific cases and conditions under which a company may acquire its own shares. For a limited liability company, Article 200 of the Polish Commercial Companies Code provides a restrictive rule, allowing the acquisition or pledge of own shares only in limited statutory situations, such as enforcement proceedings or acquisition for redemption. EU company law, including Directive (EU) 2017/1132, also influences the framework for share buy-backs in public limited liability companies.
What are treasury shares used for?
Treasury shares may serve several legitimate corporate purposes. A company may acquire its own shares to carry out a share redemption, implement an employee or management incentive plan, stabilise ownership structure, facilitate a merger or restructuring, or execute a buy-back programme approved by the general meeting. In listed companies, share buy-backs may also be connected with capital allocation policy or market transactions, subject to securities law, disclosure duties and market abuse rules.
From a corporate law perspective, treasury shares require careful analysis of the company’s articles of association, the wording of the general meeting resolution, the available distributable funds, the purpose of the acquisition and the maximum number of shares to be acquired. Under Article 362 § 2 of the Polish Commercial Companies Code, in specified cases involving a Polish joint-stock company, own shares may be acquired only if statutory conditions are met, including full payment of the shares and compliance with the limit under which the total nominal value of own shares may not exceed 20% of the share capital. Article 362 also regulates the financial basis for the acquisition and, for certain buy-backs, the required authorisation by the general meeting.
Treasury shares also have accounting and tax consequences. Under IAS 32.33, an entity that reacquires its own equity instruments presents them as a deduction from equity, and no gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of those instruments. Polish accounting rules may require a separate analysis depending on the legal form of the company, applicable accounting framework and purpose of the transaction. Tax treatment may differ depending on whether the transaction involves redemption, resale, distribution of profits, employee incentives or restructuring.
When should legal advice be sought in relation to treasury shares?
Legal advice is recommended before adopting a resolution on a share buy-back, launching a buy-back programme, redeeming shares, transferring treasury shares to employees or managers, or using treasury shares in a merger, acquisition or restructuring. The same applies where treasury shares are held by a subsidiary, acquired by a third party acting on behalf of the company, or connected with financing arrangements, pledges or shareholder disputes.
For private companies, the key issues usually include whether the company is allowed to acquire its own shares, how to structure the transaction, whether the acquisition price is properly funded, and how to document the process. For listed companies, additional matters arise, including inside information, disclosure obligations, market abuse restrictions, brokerage procedures and equal treatment of shareholders.
Early consultation with a lawyer can help avoid invalid resolutions, unlawful distributions, breaches of directors’ duties, disputes with shareholders, accounting irregularities or regulatory exposure. This is particularly important because treasury shares may affect voting thresholds, dividend calculations, capital maintenance rules, management board liability and future exit transactions.
Legal support in matters involving treasury shares
Support from a law firm in relation to treasury shares may include in particular:
- analysis of whether the company may lawfully acquire or hold its own shares,
- preparation of general meeting resolutions and management board documents for a share buy-back,
- review of articles of association and corporate approvals required for treasury share transactions,
- structuring share redemption, resale or allocation of treasury shares under incentive plans,
- assessment of limits, funding requirements and capital maintenance rules under Polish company law,
- support for listed companies in relation to disclosure duties and buy-back programmes,
- coordination of legal, accounting and tax aspects of treasury share transactions,
- advice on management board liability and shareholder rights affected by own shares.
Need assistance with treasury shares, share buy-backs or redemption of shares? Contact us.