A closely held corporation sought to repurchase 25 percent of its outstanding shares from one of its shareholders The corporation and the shareholder agreed that the corporation would purchase all of the shareholder 's stock at a price of $500,000, payable $100,000 immediately in cash and the balan...

a At the time of repurchase there is sufficient earned surplus 250000 to pay the 100000 due Each sub ...

A closely held corporation sought to repurchase 25 percent of its outstanding shares from one of its

Question:

A closely held sought to repurchase 25 percent of its outstanding shares from one of its shareholders. The and the shareholder agreed that the would purchase all of the shareholder's stock at a price of $500,000, payable $100,000 immediately in cash and the balance in four consecutive annual installments. The state's incorporation statute provides: "A may purchase its own shares only out of earned surplus but the may make no purchase of shares when it is insolvent or when such purchase would make it insolvent." At the time of the repurchase of the shares, the had an earned surplus of $250,000.
(a) What are the arguments that the repurchase of shares satisfied the incorporation statute?
(b) What are the arguments that the repurchase of the shares did not satisfy the incorporation statute?
(c) Which argument should prevail?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...