What financing source is required for a private company's redemption of its own shares?

The requirement for a private company to redeem its own shares is governed by company law, which usually stipulates that the redemption must be financed using distributable profits. Distributable profits refer to the profits that a company can distribute to its shareholders after accounting for all liabilities and necessary reserves. This requirement ensures that a company does not impair its financial stability by redeeming shares without sufficient earnings to support such actions.

Using distributable profits for share redemption is intended to protect creditors by ensuring that the company's ability to meet its obligations is not jeopardized. In contrast, the other financing sources mentioned—borrowed capital, equity financing, and external investors—are not explicitly required or endorsed for this particular action of share redemption under typical company law provisions.