Treasury Shares in Singapore
Treasury shares in Singapore are shares that a company has bought back from its own shareholders and are now held by the company itself. These shares are not considered to be outstanding, which means they don't entitle the company to any voting rights or dividends.
There are a few reasons why a company might choose to buy back its own shares:
To increase earnings per share (EPS). EPS is a financial metric that shows how much profit a company makes for each outstanding share of stock. By reducing the number of outstanding shares, a company can increase its EPS, even if its overall profit remains the same. This can make the company's stock more attractive to investors.
To signal confidence in the company's future. When a company buys back its own shares, it is essentially saying that it believes its stock is undervalued. This can boost investor confidence and lead to a higher stock price.
To defend against a hostile takeover. A hostile takeover is an attempt by one company to acquire another company against the will of the target company's management. By buying back its own shares, a company can make it more expensive for a potential acquirer to buy a controlling stake in the company.
Here are some of the regulations regarding treasury shares in Singapore:
Only repurchased ordinary shares can be held as treasury shares.
A company must file a “Notice of Cancellation or Disposal of Treasury Shares under S76K” transaction via BizFile+ to cancel or dispose of treasury shares.
Treasury shares are not classified as an asset on the balance sheet as they don't have any probable future economic benefit.
They are usually presented under the equity capital in the balance sheet as a negative number.
What is the difference between shares and treasury shares?
Here's a breakdown of the key differences between shares and treasury shares in Singapore:
Feature | Shares | Treasury Shares |
Ownership | Owned by investors (individuals or institutions) | Owned by the company itself |
Status | Outstanding (available for trading) | Not outstanding (not actively traded) |
Voting Rights | Entitled to voting rights at shareholder meetings | No voting rights |
Dividend Payments | Eligible to receive dividends if declared | No entitlement to dividends |
Impact on EPS (Earnings Per Share) | No direct impact | Can increase EPS by reducing outstanding shares |
Availability | Traded on the stock exchange | Not traded on the stock exchange |
Limit on Holdings | None | Capped at 10% of total issued ordinary shares |
Purpose | Represent ownership stake in the company | Used for various strategic purposes (increasing EPS, signaling confidence, etc.) |
In simpler terms, shares are the basic units of ownership in a company. They are what investors buy and sell on the stock exchange, and they come with voting rights and the potential for dividend payments.
Treasury shares, on the other hand, are a company's own shares that it has bought back from shareholders. These shares are not considered outstanding, meaning they don't participate in voting or receive dividends. Companies can use treasury shares for various strategic reasons, but they are not actively traded on the stock exchange.
Do treasury shares pay dividends?
Treasury shares in Singapore do not pay dividends. This is because they are not considered outstanding shares and are not entitled to the rights associated with outstanding shares, including dividends.
The Companies Act in Singapore specifically prohibits dividends from being paid to treasury shares. Dividends can only be paid from a company's profits and to its outstanding shareholders.
What is the limit of treasury shares in Singapore?
In Singapore, the limit for treasury shares is capped at 10% of the total number of issued ordinary shares in that class at the time. This means a company cannot hold more than 10% of its own outstanding ordinary shares as treasury shares.
If a company acquires treasury shares that push them over this 10% limit, they are required to dispose of or cancel the excess shares within 6 months. This is according to Section 76I(3) of the Companies Act.
How Bestar SG can Help
Bestar SG can assist companies with various aspects of treasury shares in Singapore, including:
Compliance with accounting standards: Bestar SG can ensure that companies comply with the relevant Singapore Financial Reporting Standards (SFRSs) regarding treasury shares. This includes proper accounting treatment for the purchase, cancellation, and disposal of treasury shares.
Recordkeeping and financial reporting: Bestar SG can help companies maintain accurate records of their treasury shares and ensure that they are reflected correctly in the financial statements.
Regulatory filings: Bestar SG can assist companies with filing the necessary notices with the Accounting and Corporate Regulatory Authority (ACRA) regarding treasury shares.
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