This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A question which often arises is whether or not a corporation may acquire or deal in its own stock. Courts in New York, California, Wisconsin, and other jurisdictions have decided in recent years that, in the absence of statute to the contrary, a corporation may deal in its own stock, provided the purchase or sale is made in good faith and without injury to creditors. However, the statutes of many states specifically forbid this practice. It is obviously objectionable when it is so used as to bring about a reduction in outstanding capital stock without due process of law, or when it is used as a method of paying off certain favored shareholders at the expense both of the other shareholders of the company and of the creditors.