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Volume XII, Number 221

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August 08, 2022

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Four Decades After Being Abolished, Some California Corporations Continue To Refer To "Treasury Stock"

Treasury shares are shares that a corporation has issued and then reacquired but not retired.  Hence, they are shares that have been issued but are no longer outstanding.  In some states, treasury shares retain some legal significance but not so in California.  When the legislature enacted the current General Corporation Law, it abolished the concept.  Corporations Code Section 510(a) provides:

"When a corporation purchases, redeems, acquires by way of conversion to another class or series, or otherwise acquires its own shares, those shares are restored to the status of authorized but unissued shares, unless the articles prohibit the reissuance thereof."

Consequently, the term "treasury share" makes not appearance in the Corporations Code ("treasury stock" appears in the definition of "security" in Section 25019, but that statute is based on Section 2(a)(1) of the Securities Act of 1933).  

Nonetheless, some California corporations continue to refer to "treasury shares".  For example, I recently noticed the following in the form certificate of amendment included in an information statement filed by a California corporation with the Securities and Exchange Commission:

"Upon the close of business on the date of filing of this Second Certificate of Amendment with the California Secretary of State (the “Effective Date”) each          (  ) shares of Common Stock then issued and outstanding, or held by the Corporation as treasury stock immediately prior to the Effective Time shall automatically and without any further action by the Corporation or the holder thereof, be reclassified, combined,  changed, converted and reconstituted into one (1) validly issued share of Common Stock (the “Reverse Stock Split”). . .".

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume IX, Number 350
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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