§ 7413 Membership Purchase Restrictions

• •A company can't buy back its own shares if it has a special rule in its papers that says it must pay money to members in certain situations.
• •If buying back shares would make it hard for the company to pay what it owes because of that special rule, it's not allowed.
• •This rule also applies to smaller companies owned by the bigger company.

Imagine a company promises to pay its members extra money if something big happens, like selling the company. Now, if the company wants to buy back its own shares but doing so would mean it doesn’t have enough money left to pay that promised extra money, it can’t do the buyback.

The company has to make sure it can still pay what it promised before buying back any shares. If buying shares would make it hard to pay, it’s against the rules.