A private company may purchase its own shares from which source, provided set procedures are followed?

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Multiple Choice

A private company may purchase its own shares from which source, provided set procedures are followed?

A private company can buy back its own shares only from funds that are legally available for distribution or, in certain cases, from capital with the proper procedures. The key rule is that the purchase must not jeopardize the company’s solvency and must be authorized by the company’s articles and formal steps. If distributable profits are available, the buy-back can be funded from those profits; if not, the company may use capital by reducing share capital for the purpose of the buy-back, but this requires the correct formalities and approvals. Because of these requirements, the funds for a private company’s buy-back are restricted to distributable profits or capital with the proper procedures, making that option the correct one. The other sources listed aren’t appropriate: unsecured loans aren’t the standard funded source for a buy-back; using personal funds of directors isn’t permissible as a source for the company to repurchase its shares; and a private company wouldn’t fund a buy-back by listing on a stock exchange, which is unrelated to the private company’s internal buy-back rules.

A private company can buy back its own shares only from funds that are legally available for distribution or, in certain cases, from capital with the proper procedures. The key rule is that the purchase must not jeopardize the company’s solvency and must be authorized by the company’s articles and formal steps. If distributable profits are available, the buy-back can be funded from those profits; if not, the company may use capital by reducing share capital for the purpose of the buy-back, but this requires the correct formalities and approvals. Because of these requirements, the funds for a private company’s buy-back are restricted to distributable profits or capital with the proper procedures, making that option the correct one.

The other sources listed aren’t appropriate: unsecured loans aren’t the standard funded source for a buy-back; using personal funds of directors isn’t permissible as a source for the company to repurchase its shares; and a private company wouldn’t fund a buy-back by listing on a stock exchange, which is unrelated to the private company’s internal buy-back rules.

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