Companies Act 19,550 · Article 220 — Acquisition of treasury shares

Acquisition of treasury shares (art. 220 LGS)

A company may acquire its own shares only to cancel them following a capital reduction; exceptionally, using profits or free reserves to avoid serious harm; or where they form part of the assets of a business or company being acquired.

Source: Act 19,550

What article 220

Article 220 limits acquisition by a company of its own issued shares to three exceptional situations.

Official text · Act 19,550, art. 220

The company may acquire shares it has issued only under the following conditions:

1) To cancel them, after a resolution reducing capital;

2) Exceptionally, using realized and liquid profits or free reserves, where the shares are fully paid and in order to avoid serious harm, which shall be justified at the next ordinary shareholders’ meeting;

3) Where they form part of the assets of a business it acquires or a company it absorbs.

Source: Law 19,550, art. 220 — InfoLEG (updated official text)

Commentary

Treasury-share purchases are restricted because they can hollow out capital and alter the balance among shareholders. The statute therefore allows only specified situations with safeguards.

The serious-harm ground is exceptional: shares must be fully paid, profits or free reserves must fund the purchase, and the transaction must be justified at the next ordinary meeting. Outside the statute, management may incur liability.

Distinctions often confused

Acquisition for cancellation is not the same as Acquisition to avoid serious harm. The first accompanies a capital reduction; the second is exceptional, uses profits or free reserves and must be justified to the meeting.

Practical impact

Treasury-share acquisitions should be structured strictly within Article 220; outside those cases, the transaction risks invalidity or management liability.

Frequently asked questions

May a company purchase its own shares?

Only in the three Article 220 cases: cancellation with a capital reduction; exceptionally to avoid serious harm using profits or free reserves; or where the shares form part of the assets of a business or company acquired.

This page is informational and does not constitute legal advice nor replace professional consultation. It quotes the official text of the rule; for its application to a specific case, consult a licensed professional.

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