What is the difference between redemption of shares and repurchase of shares?

By Yolander Prinzel AAA
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. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ...
  2. What is the role of agency theory in corporate governance?

    Understand how businesses use agency theory in corporate governance. Learn how moral hazard problems may be addressed using ...
  3. Why does Berkshire Hathaway prefer to buy back shares instead of paying dividends?

    Learn why Berkshire Hathaway, the company owned by billionaire Warren Buffett, prefers stock buybacks over paying its shareholders ...
  4. How do I calculate current liabilities in Excel?

    Learn what current liabilities are and examples of a company's current liabilities, and find out how to calculate total current ...
RELATED TERMS
  1. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
  2. Protected Cell Company (PCC)

    A corporate structure in which a single legal entity is comprised ...
  3. Registered Holder

    Shareholders who hold their shares directly with a company.
  4. Duty Of Loyalty

    A director's responsibility to act at all times in the best interests ...
  5. Duty Of Care

    One of two primary fiduciary duties of directors, the duty of ...
  6. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...

You May Also Like

Related Articles
  1. Stock Analysis

    Intel Doesn't Need New Management

  2. Stock Analysis

    Will Spinoffs Give American Capital ...

  3. Stock Analysis

    Will American Airlines Fall Back To ...

  4. Stock Analysis

    Qualcomm's New Buyback Program Is Well-Timed

  5. Stock Analysis

    Should You Leave Galena To The Day Traders?

Trading Center