In many states, corporation law requires that retained earnings be restricted for dividend purposes to the extent

Question:

In many states, law requires that retained earnings be restricted for purposes to the extent of the cost of treasury shares. What is the reason for this legal rule?

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... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...