The treatment of treasury shares following an upstream merger: a frequently underestimated issue in family-owned groups
January 2026 /
In family-owned groups, merger transactions are common. One configuration we occasionally encounter is the absorption of the parent company by its subsidiary, often referred to as an upstream merger. This type of transaction is generally driven by very practical considerations, as the subsidiary is often the operating company: avoiding the need to update contracts (commercial, HR, etc.), bringing operational activities closer to ownership in order to transmit a single structure, or preparing for a reorganisation—often in a context of concentrated, or even sole, shareholding.
While the transaction may appear straightforward at first glance, it often gives rise to an unexpected consequence: the surviving entity becomes the holder of its own shares. This aspect is rarely identified at an early stage and therefore deserves particular attention.
Why do treasury shares arise in an upstream merger?
Prior to the merger, the absorbed company—i.e. the parent company—held shares in the absorbing company, the subsidiary. Upon completion of the merger, all assets and liabilities of the absorbed company are transferred to the absorbing company. Accordingly, the shares held by the absorbed company follow the same path.
As a purely mechanical result, the absorbing company becomes the owner of its own shares.
Treasury shares “acquired” as a result of the absorption of a parent company by its subsidiary have a specific nature. Such shares are neither the result of a financial strategy nor of a decision to reduce the share capital, but arise automatically, without any deliberate intent, as a direct consequence of the merger.
It is therefore essential to recall that treasury shares do not all originate from a share buyback by the company itself. Such shares may arise either from a voluntary decision of the company or automatically in the context of a merger. This distinction is fundamental, as it may result in different treatments, particularly from a tax perspective. Contrary to a common misconception, treasury shares resulting from a merger do not necessarily have to be cancelled immediately. The real question is not merely technical, but strategic: what is the company ultimately seeking to achieve?
What should be done with treasury shares after a merger?
Several options are available, and none is superior to the others; everything depends on the company’s strategy.
Subject to compliance with the applicable legal and tax framework, treasury shares may be temporarily retained, partially or fully cancelled as part of a capital reorganisation, or, in certain cases, subsequently transferred—notably in the context of an intergenerational transfer or the introduction of new shareholders.
More broadly, such treasury shares should be integrated into an overall wealth and ownership planning approach, particularly where the structure is owned by a sole shareholder. Their treatment can then become a genuine tool in support of a long-term vision, notably to facilitate the introduction of an external or family shareholder.
From a practical standpoint, a number of common pitfalls arise : treating treasury shares arising from a merger as if they resulted from a standard share buyback, overlooking the tax implications, postponing decisions due to a lack of an overall vision, or—more problematically—only discovering their existence at a later stage, during a more sensitive transaction.
Inadequate management may result in unintended accounting consequences, including restrictions on distributable reserves or the creation of a material cash lock-up that is difficult to unwind at a later stage.
Treasury shares resulting from a merger are common in family-owned groups undergoing restructuring and are neither abnormal nor inherently problematic. However, such shares must be identified, understood and addressed at an early stage. When properly managed, treasury shares cease to be a mere technical issue and become a genuine structuring lever in support of long-term family objectives.