Which statement is true regarding public companies and financial assistance for share purchases?

Public companies are generally prohibited from providing financial assistance for the purchase of their own shares due to regulations aimed at maintaining market integrity and protecting creditors. This prohibition is rooted in the concern that when a company finances the purchase of its own shares, it may artificially inflate its stock price or engage in practices that could undermine the interests of existing shareholders and creditors.

The regulatory framework, including the laws established in various jurisdictions, such as the Companies Act in the UK or similar statutes elsewhere, typically outlines specific conditions under which financial assistance might be permissible, reinforcing the prohibition in most standard scenarios. This regulation is designed to ensure that companies act in the best interest of their broader stakeholder base rather than facilitating self-interested behaviors that could distort the market. Thus, understanding this regulation is critical for those studying corporate governance and the functioning of public companies in the context of financial transactions and shareholder interests.