The Supreme Court of Rhode Island recently upheld the purchase by a corporation of its own stock in a transaction which impaired capital, despite the presence of an express statutory provision "that no corporation shall use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of the capital of the corporation." The court maintained that this statute applies only to an impairment of capital which is detrimental to creditors; and that since the corporation in question had no creditors, there was no violation. This contention was based on the proposition that the statute merely adopted the common law rule "that corporations ... may buy and sell their own shares provided they do so in good faith without intending to injure, and without in fact injuring, their creditors." Consequently, the court's holding squarely asserts that the statutory limitation upon a corporation's power to acquire its stock is designed solely for the benefit of creditors. Is this true? If so, is it good law?
Fred W. Freeman S.Ed.,
CORPORATIONS-POWER TO REACQUIRE OWN STOCK-CONSTRUCTION OF STATUTE THEREON,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol48/iss6/11