What financial requirement must be met before a stock corporation can acquire its own shares (other than redeemable shares)?
A stock corporation has the power to purchase or acquire its own shares for a legitimate corporate purpose, provided that the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired (SEC. 40, Revised Corporation Code of the Philippines). This requirement is designed to ensure that the corporation’s capital is not impaired and that corporate creditors are not prejudiced by the reduction of assets used for the acquisition. Legitimate purposes include eliminating fractional shares, acquiring shares at a delinquency sale, or paying dissenting stockholders entitled to appraisal rights. The use of retained earnings guarantees that the company is solvent and maintaining its legal capital.
02 November 2025
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