What are founder's shares, redeemable shares and treasury shares? (Sections 7, 8 and 9 of the RCC)
Summary
TLDRAttorney Marie Chris Baton Lasko's video simplifies the concept of shares under the Revised Corporation Code. She discusses founders shares, which offer special voting privileges for five years post-incorporation. Redeemable shares, also known as callable shares, allow a corporation to buy back shares without unrestricted retained earnings, and when redeemed, they are retired. Treasury shares, reacquired by the corporation, can be resold and do not count as outstanding shares unless held in the treasury, affecting shareholder rights.
Takeaways
- 📚 The video discusses three types of shares in a corporation: founders shares, redeemable shares, and treasury shares, as outlined in the Revised Corporation Code.
- 👩💼 Founders shares are offered to the organizers or promoters of the corporation and come with special rights, such as the right to be voted on as a director, but these rights are limited to five years from the date of incorporation.
- 🔄 Redeemable shares can be issued by the corporation and may be bought back by the corporation from shareholders, even without unrestricted retained earnings, as long as it's stated in the articles of incorporation.
- 📜 The terms for redeeming redeemable shares must be explicitly mentioned in the articles of incorporation and the certificate of stock.
- 🏛 The corporation is not obligated to redeem redeemable shares; it is an optional action for the corporation.
- 💼 Unrestricted retained earnings refer to accumulated earnings that are not designated for a specific purpose and are 'free' to be used for various corporate actions.
- 🔙 When a corporation redeems its shares, those shares are retired and cannot be sold again unless the articles of incorporation allow it.
- 💼 Treasury shares are shares that have been issued, fully paid for, and then reacquired by the corporation through purchase, redemption, donation, or other lawful means.
- 💼 Treasury shares, unlike redeemable shares, require unrestricted retained earnings to be used for their repurchase and can be resold by the corporation at a price set by the board of directors.
- 🏢 Treasury shares, when not sold and remain in the corporation's treasury, are not considered outstanding shares and do not carry voting rights or any shareholder rights.
Q & A
What are the three types of shares discussed in the video?
-The three types of shares discussed are founders shares, redeemable shares, and treasury shares.
What are founders shares and what special privilege do they have?
-Founders shares are offered to the organizers or promoters of the corporation and have a special privilege of being voted on as a director and having the executive right to vote in the election of directors, but this privilege is limited to five years from the date of incorporation.
What is the time limit for the special privileges of founders shares?
-The special privileges of founders shares are limited to five years from the date of incorporation of the corporation.
What are redeemable shares and what makes them different from other shares?
-Redeemable shares are shares that the corporation has the option to buy back from shareholders. They are different because they can be redeemed by the corporation even without the existence of unrestricted retained earnings.
What is the term used interchangeably with redeemable shares?
-The term 'callable shares' is used interchangeably with 'redeemable shares'.
What is unrestricted retained earnings and why is it emphasized in the discussion of redeemable shares?
-Unrestricted retained earnings are accumulated earnings of the corporation that have not been restricted or segregated for a particular purpose. It is emphasized because the general rule requires the existence of such earnings for a corporation to buy back its shares, but redeemable shares are an exception to this rule.
What happens to redeemable shares when a corporation buys them back?
-When a corporation buys back redeemable shares, they are retired and cannot be sold again unless stated otherwise in the articles of incorporation.
What are treasury shares and how are they different from redeemable shares?
-Treasury shares are shares that have been issued, fully paid for, and then reacquired by the corporation. They can be sold again, unlike redeemable shares which are retired upon reacquisition.
What is required for a corporation to buy back its treasury shares?
-For a corporation to buy back its treasury shares, there must be unrestricted retained earnings to cover the purchase.
What is the status of treasury shares if they are not sold again by the corporation?
-If treasury shares are not sold again by the corporation, they are not considered outstanding shares, meaning they do not have voting rights or any rights since they are not held by any shareholder and become the property of the corporation.
What is the source of money used to buy back treasury shares as per section 40 of the revised corporation code?
-The source of money used to buy back treasury shares is the unrestricted retained earnings, as required by section 40 of the revised corporation code.
Outlines
📚 Founders, Redeemable, and Treasury Shares Explained
Attorney Marie Chris Baton Laskso introduces the concept of different types of shares in a corporation under the Revised Corporation Code. She discusses founders shares, which are offered to organizers or promoters and have special voting rights, including the right to vote for directors, for a limited period of five years from the date of incorporation. Redeemable shares, also known as callable shares, are those that the corporation can buy back from shareholders after a fixed period, even without unrestricted retained earnings, as detailed in Section 8. The terms of redemption should be stated in the articles of incorporation and the stock certificate.
💼 The Role of Unrestricted Retained Earnings in Share Redemption
The script explains that while the general rule requires unrestricted retained earnings for a corporation to buy back its shares, an exception is made for redeemable shares under Section 8, allowing redemption without such earnings. Unrestricted retained earnings are earnings not designated for a specific purpose and are free to be used. The effect of redeeming shares is that they are retired and cannot be sold again unless the articles of incorporation allow it. This contrasts with treasury shares, which can be resold.
🏛 Understanding Treasury Shares and Their Implications
Treasury shares are defined as stocks that have been issued, fully paid for, and then reacquired by the corporation. These can be repurchased for various reasons, such as eliminating fractional shares. Section 9 of the Revised Corporation Code allows these shares to be resold at a reasonable price set by the board of directors. Unlike redeemable shares, treasury shares require unrestricted retained earnings for their repurchase, as mandated by Section 40. When not sold again, treasury shares are considered the property of the corporation and do not count as outstanding shares, meaning they carry no voting rights or other shareholder benefits.
Mindmap
Keywords
💡Founders Shares
💡Redeemable Shares
💡Unrestricted Retained Earnings
💡Treasury Shares
💡Articles of Incorporation
💡Directors
💡Incorporation
💡Reacquisition
💡Retired Shares
💡Board of Directors
💡Outstanding Shares
Highlights
Introduction to the concept of Founders Shares as per Section 7 of the Revised Corporation Code.
Founders Shares are offered to the organizers or promoters of the corporation with special voting rights.
Founders Shares have a limited executive right to vote or be voted on as a director for a period of five years from the date of incorporation.
Definition and discussion of Redeemable Shares as covered in Section 8 of the Revised Corporation Code.
Redeemable Shares can be bought back by the corporation from shareholders upon the expiration of a fixed period.
The corporation is not obligated to redeem Redeemable Shares; it is an optional right.
Redeemable Shares can be redeemed even without the existence of unrestricted retained earnings, an exception to the general rule.
Explanation of Unrestricted Retained Earnings and their role in the redemption of shares.
The effect of share redemption: once bought back, Redeemable Shares are retired and cannot be sold again unless stated otherwise.
Introduction to Treasury Shares as per Section 9 of the Revised Corporation Code.
Treasury Shares are fully paid shares that the corporation reacquires and can sell again at a reasonable price.
Treasury Shares require unrestricted retained earnings to cover their repurchase, unlike Redeemable Shares.
The corporation can sell Treasury Shares again, unlike Redeemable Shares which are retired upon repurchase.
Treasury Shares, if not sold, do not count as outstanding shares and carry no voting rights.
Summary of the differences between Founders Shares, Redeemable Shares, and Treasury Shares.
Encouragement for viewers to like, subscribe, and enable notifications for new video uploads.
Transcripts
foreign
[Music]
hi i am attorney marie chris baton lasko
this is my virtual classroom welcome to
my youtube channel in this channel i
shall aim to simplify the law i shall
discuss concepts and principles of law
in under 10 minutes
hi everyone welcome back to another
video still on your revised corporation
code for this video i want to talk about
three types of shares
your
founders shares your renewable shares
and your treasury shares
these shares are actually covered by
section 7 section 8 and section 9 of
your revised corporation code section 7
of your revised corporation code talks
about founders shares
what are founders shares
these are actually the shares that are
being offered to the organizers or
promoters of the corporation now usually
these shares have rights that are not
given to
other types of shares there is a special
privilege given to them
an example of a privilege given to them
and which you can also find under
section 7 is the right to be voted on as
a director of a corporation and also the
executive right to vote in the election
of directors
now remember however that this privilege
on the executive right to vote and be
voted on
your section 7 gives a limit to that and
the limit is only for
five years
five years counted from what period of
time
five years from the date of
incorporation
so while founders shares may have this
right
hold or rather of a founders share may
have the executive right to vote or be
voted on in an election of director of a
of uh of directors rather of a
corporation
there is an expiration and that is five
years from the time of the incorporation
of the
corporation
now how about redeemable shares what are
the mobile shares
you will find redeemable shares under
section 8 of your revised corporation
code let's read section 8.
redeemable shares may be issued by the
corporation when expressly provided in
the articles of incorporation
they are shares which may be purchased
by the corporation from the holders of
such shares upon the expiration of a
fixed period
regardless of the existence of
unrestricted retained earnings in the
books of the corporation
and upon such other terms and conditions
stated in the articles of incorporation
and the certificate of stock
representing the shares subject to the
rules and regulations issued by the
commission
another term for redeemable shares
would also be your callable shares
what are these redeemable shares
these are shares that have been already
sold and held
sold to rather and held by a stockholder
to which the corporation has the option
of calling back or buying back or
redeeming
from the shareholders
that is why it's called redeemable
now in section 8 it will tell you that
the terms
of the redemption should be
written or pleased or provided for
in the articles of incorporation
so you and also in the certificate of
stock
now it must be
stated there as to the period of time
that the corporation may redeem or buy
back these
redeemable shares
is the corporation under obligation to
buy back or
redeem these shares these three
redeemable shares the answer is no this
is optional on the part of the
corporation
the corporation may or may not
redeem those shares
also under section 8 it talks about
the unrestricted retained earnings it
says there that the corporation can
redeem
or buy back these redeemable shares even
without the existence of unrestricted
retained earnings
what then is this unrestricted retained
earnings
these are actually accumulated earnings
of the corporation that has not been
restricted or that has not been
segregated for a particular purpose like
for example restricting such earnings
for expansion so these are earnings that
are actually free that's why it's termed
unrestricted reading earnings so section
8 does not require that the corporation
has unrestricted earnings
for the corporation to be able to redeem
these redeemable shares
now why am i emphasizing the
unrestricted reading earnings
this is because the general rule
actually is
that when a corporation will purchase
its own shares
there must be the existence of
unrestricted retained earnings that
would be enough
to buy to
to buy back
the shares of a corporation and you find
that under section 40 four zero
under section eight that actually
provides for an exception to the general
rule under section 40 and the exception
is for redeemable shares where your
corporation
can buy back or redeem the redeemable
shares even without unrestricted
retained earnings so this is an
exception to the general rule that is
provided under section 40 on the
corporation's power to buy bath shares
what now is the effect of the redemption
of these shares
what happens when the corporation
buys back the redeemable shares
what happens actually is that these
shares
um will now be retired and the
corporation can no longer sell them back
unless it is otherwise stated in the
articles of incorporation in other words
if the articles of incorporation does
not say that the corporation can sell it
back
the general rule is these redeemable
shares when purchased back by the
corporation is now considered as retired
and can no longer be sold again
this
is contrary to treasury shares which can
actually be sold again
so your treasury shares you can find
that under section 9 of the revised
corporation code
let's read section 9
it says
treasury shares our shares of stock
which have been issued and fully paid
for but subsequently required by the
issuing corporation through purchase
redemption donation or some other lawful
needs
such shares may again be disposed of for
a reasonable price fixed by the board of
directors so what are treasury shares
treasury shares are those shares that
have already been sold by the
corporation and it has been fully paid
for
and the corporation
gets it back or buys them back not
necessarily
shares that are redeemable shares it
could be other types of shares and their
reacquisition of those shares may be
through donation by the stockholder or
the reason for them buying buying it
back would be to
um it could be to eliminate fractional
shares is when shareholders would have
a fraction of a share
as a consequence of a stock dividend
which i will be discussing in another
video
so for any lawful purpose that your
corporation would decide to reacquire or
buy back the shares
those are treasury shares for treasury
shares as opposed to the redeemable
shares that i earlier
mentioned
it is required that there must be
unrestricted retained earnings to cover
for the purchase of these shares
your treasury shares
your treasury shares are then covered by
your section 40 of the revised
corporation code that requires the
existence of unrestricted retained
earnings so that that would be the
source of money to be used to buy
baffled shares unlike your redeemable
shares
so what is the effect once a corporation
buys back its own shares
under section nine
those shares now
would become the property of a
corporation it does not revert to its
unissued shares
it does not get retired
in other words your corporation can
actually sell it again
at a price fixed by your board of
directors now if these shares remain in
the treasury meaning it is not being
sold again by the corporation then the
treasure treasury shares are not
considered as outstanding shares meaning
they do not get a vote
they cannot um
they do not have any right at all
because clearly it is not being held by
any shareholder it now becomes a
property of the
corporation so that is it for this video
i hope you don't understand the
difference between your
redeemable shares and your treasury
shares and you also now get to
understand what are
founders shares so again that is your
section seven eight and nine of your
advice corporation code again i hope you
learned something from this video and
i'll see you in the next
i hope you have learned something from
this video if you have please click like
subscribe and that notification bell so
that you will be notified of new video
uploads thank you for watching see you
next time in mbl classroom
[Music]
you
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