(1) A corporation may acquire its own shares, and, except as provided by section 7-117-101 (6), shares so acquired constitute authorized but unissued shares.
(2) If the articles of incorporation prohibit the reissuance of acquired shares:
(a) The number of authorized shares is reduced by the number of shares acquired by the corporation, effective upon amendment to the articles of incorporation; and
(b) The corporation shall deliver to the secretary of state, for filing pursuant to part 3 of article 90 of this title, articles of amendment to the articles of incorporation, which are effective without shareholder action, that state:
(I) The domestic entity name of the corporation;
(II) The reduction in the number of authorized shares, itemized by class and series; and
(III) The total number of authorized shares, itemized by class and series, remaining after reduction of the shares.
Source: L. 93: Entire article added, p. 762, § 1, effective July 1, 1994. L. 2002: IP(2)(b) amended, p. 1847, § 109, effective July 1; IP(2)(b) amended, p. 1712, § 109, effective October 1. L. 2003: IP(2)(b) and (2)(b)(I) amended, p. 2317, § 233, effective July 1, 2004.
ANNOTATION
Law reviews. For note, "Impairment of Capital by the Purchase of a Corporation's Own Stock", see 24 Rocky Mt. L. Rev. 89 (1951). For article, "1959 Amendments to the Colorado Corporation Code", see 36 Dicta 489 (1959). For comment on Herald Co. v. Seawell (472 F.2d 1081 (10th Cir. 1972)), see 45 U. Colo. L. Rev. 131 (1973). For article, "Corporate Director Liability", see 65 Den. U. L. Rev. 59 (1988).
Annotator's note. Since § 7-106-302 is similar to §§ 7-3-102 and 7-6-103 as they existed prior to the 1993 recodification of the "Colorado Business Corporation Act", articles 101 to 117 of title 7, cases construing those provisions and their predecessors have been included in the annotations to this section.
No redemption unless articles grant right. Generally neither a shareholder nor the corporation has the right to force redemption unless the articles of incorporation specifically grant that right. Hackbart v. Holmes, 675 F.2d 1114 (10th Cir. 1982).
Stockholder control through use of corporate resources not a legitimate corporate purpose. Neither the achievement or perpetuation of control by a majority or any group of stockholders nor the freezing out or imposition upon minority stockholders is within legitimate corporate purposes to the extent of authorizing utilization of corporate resources and powers for that purpose. Herald Co. v. Bonfils, 315 F. Supp. 497 (D. Colo. 1970), rev'd on other grounds sub nom. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
Similarly, it is not proper for management to use corporate resources to retain control and eliminate the possibility of a control antagonistic to that of incumbents. Herald Co. v. Bonfils, 315 F. Supp. 497 (D. Colo. 1970), rev'd on other grounds sub nom. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
However, preventing others from obtaining control of corporation by corporation's purchase of its own stock is not improper. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
Unless it would impair capital. It is not lawful for a corporation to use any of its funds for the purpose of buying its own stock if it will cause an impairment of capital. Colo. Indus. Loan & Inv. Co. v. Clem, 82 Colo. 399, 260 P. 1019 (1927) (decided under C.L. 1921, § 2260).
When a corporation purchases its own stock, it shall be held as treasury stock by the corporation until disposed of in some manner. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
The validity of a corporate stock repurchase may be attacked only by persons who are injured or prejudiced thereby, and not by the corporation itself. Minnelusa Co. v. Andrikopoulos, 929 P.2d 1321 (Colo. 1996).
Evidence held not to show price paid by corporation for its stock was exorbitant. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
Directors expressly made personally liable to corporation. This section and §§ 7-5-114 (4) and 7-5-110 expressly make directors personally liable to the corporation. Sec. Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo. App. 344, 569 P.2d 875 (1977).
Absolute liability. Liability under this section and §§ 7-5-114 (4) and 7-5-110 is absolute save for the statutory defenses set forth in § 7-5-114 (6). Sec. Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo. App. 344, 569 P.2d 875 (1977).
A showing of fraud is not required to impose liability under this section and §§ 7-5-114 (4) and 7-5-110. Sec. Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo. App. 344, 569 P.2d 875 (1977).
When liability for violating § 7-5-114 (4) attaches. A cause of action accrues at the time an improper purchase of treasury shares is made, and any liability imposed on directors for violating § 7-5-114 (4) would therefore attach at the time of the purchase. Sec. Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo. App. 344, 569 P.2d 875 (1977).
A corporation may "freeze out" minority shareholders by a reverse stock split and fractional share buyout. Goldman v. Union Bank & Trust, 765 P.2d 638 (Colo. App. 1988).