A:

Sometimes, shares of stock offered by a company are not regular, market-driven common shares. Instead, they may be preferred shares, which are considered fixed income securities and are issued with a par value. When that par value is paid back to the purchaser of the preferred share, this is considered a redemption. Redemption can also occur when issued bonds are called or matured and the principal, or par value, is paid back.
When a company issues shares of common stock for the public to buy and later decides to buy some of those shares back, that's considered a repurchase rather than a redemption. The major difference between the two is that the shares bought back in a redemption are considered a fixed-income security that is expected to be bought back by the issuer. A repurchase of shares, however, reduces the number of outstanding shares that a company has, and can increase the company's holdings so that it remains or regains majority shareholder status. It can also increase the stock's earnings per share, since it reduces the outstanding number of shares. A repurchase may even allow the company to profit off of the resale of its own shares at a later time.

RELATED FAQS
  1. Why would a company choose to repurchase in lieu of redeem?

    Learn the difference between a stock repurchase and a stock redemption, and find out about the reasons why a company might ... Read Answer >>
  2. Why should a company buy back shares it feels are undervalued instead of redeeming ...

    Discover the difference between common stock and preferred stock. When is repurchase preferable to redemption, and what factors ... Read Answer >>
  3. What is the difference between par and no par value stock?

    Understand the difference between par and no par value stock and how this differentiation affects corporate liabilities and ... Read Answer >>
  4. Why would a stock have no par value?

    People often get confused when they read about the "par value" for a stock. One reason for this is that the term has slightly ... Read Answer >>
  5. What is the difference between par value and market value?

    Learn about the difference between the par value and market value of financial securities, including the role they play in ... Read Answer >>
  6. Are corporations required to state the par value of their stock?

    Find out when companies are required to state the par value of stock and why it is beneficial to businesses and shareholders ... Read Answer >>
Related Articles
  1. Investing

    What are Issued Shares?

    Issued shares are the amount of authorized stocks a company’s shareholders buy and own. The annual report shows the number of outstanding shares.
  2. Investing

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  3. Markets

    Why Would A Stock Have No Par Value?

    A stock with no par value might trade for thousands of dollars. It just depends on what the market deems it’s worth.
  4. Investing

    What's Share Capital?

    Share capital, also called equity financing, is the total amount of money and property a company has received for selling its shares to shareholders.
  5. Investing

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...
  6. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  7. Markets

    The Impact Of Share Repurchases

    Share repurchases can impact investors and companies in different ways.
  8. ETFs & Mutual Funds

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  9. Markets

    The Weighted Average Of Outstanding Shares

    The quantity of a company’s outstanding shares changes when it issues new shares, repurchases or retires existing ones, or converts others.
  10. Investing

    What is Par Value?

    Par value is a term used for investments that means original value. It’s also called face value or nominal value.
RELATED TERMS
  1. Redemption

    The return of an investor's principal in a fixed income security, ...
  2. Full Stock

    A stock with a par value of $100 per share. A full stock issue ...
  3. Share Repurchase

    A program by which a company buys back its own shares from the ...
  4. Half Stock

    Stock sold with a par value half of what is considered standard. ...
  5. Par

    Short for "par value," par can refer to bonds, preferred stock, ...
  6. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center