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 >>
Related Articles
  1. Investing

    What is a Share Premium Account?

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

    Understanding Redemption

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

    The Impact Of Share Repurchases

    Share repurchases can impact investors and companies in different ways.
  4. Investing

    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.
  5. Investing

    What's Your Stock's Repurchase Premium?

    Take a closer look at your favorite stock's statement of equity; you never know what you're going to find
  6. Investing

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  7. Managing Wealth

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.
  8. Investing

    What are Preference Shares?

    Preference shares, also referred to as preferred shares, are equity shares that give the shareholders certain rights ahead of common shareholders. For instance, when the corporation declares ...
  9. Investing

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  10. Investing

    Don't Let Stock Prices Fool You

    Find out why a stock with a six-figure share price can still be a good value.
RELATED TERMS
  1. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
  2. Half Stock

    Stock sold with a par value half of what is considered standard. ...
  3. Redemption

    The return of an investor's principal in a fixed income security, ...
  4. Direct Repurchase

    The buying of shares in a publicly-traded company by the company ...
  5. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  6. Share Premium Account

    Usually found on the balance sheet, this is the account to which ...
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center