OF INTEREST RE TREASURY SHARES14 May 2025 14:30
MRO HAS AT THE MOMENT 37,233,075 ORD SHARES IN THE TREASURY
AND 1,274,242,246 ORD SHARES IN ISSUE.Example of a company using treasury shares
OF INTEREST EXPLAINED
A profitable company was set up by four investors with 25 ordinary £1 shares each a while ago. Unfortunately, one of the investors needs to retire from work and therefore wants to sell her shares. The other investors are unable to buy those shares and no other investor can be found. The company, however, has sufficient funds to buy the shares from the investor. A purchase of own shares is carried out at the then market value of £1,000 per share. Rather than cancelling the shares straight away, the directors decide that the company should hold them in treasury. This is because they anticipate wanting to raise more capital in the future and are looking to set up a share option scheme for certain senior employees.
Before raising the new capital each ordinary £1 share is split into 1,000 ordinary £0.001 shares which increases the total number of shares from 100 to 100,000. The treasury shares are subject to the split so that there are now 25,000 ordinary £0.001 shares in treasury. The company then grants options over 2,000 shares at £20 per share to five senior managers.
Two years later the company has raised £1,000,000 of capital by transferring 10,000 of the ordinary £0.001 shares held in treasury to outside investors at £10 per share. This means that the company has in effect made £9 per share, as each 0.001 ordinary shares cost the company £1 per share (i.e. £1,000 divided by 1,000 (as the shares were subject to a 1,000 for 1 share split)). The company submits form SH04 to Companies House notifying them of the transfer of treasury shares as well as updates its register of members.
Over the next five years, four of the option holders exercise their options in full, whilst the fifth has left the company to join a competitor so the options have lapsed. Each time the options are exercised the company transfers shares out of treasury to the option holder and the company again updates its register of members and submits a form SH04 to Companies House.
After all these transactions there are only 7,000 treasury shares left. The company then decides to cancel these shares as they are no longer needed so updates the statutory books and submits the necessary form SH05 (Notify a cancellation of treasury shares) to Companies House to reflect this.
Cancelling treasury shares
The company can at any time decide to cancel some or all of the treasury shares. This will reduce the company’s share capital by the nominal value of the shares cancelled
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