What are founder's shares, redeemable shares and treasury shares? (Sections 7, 8 and 9 of the RCC)

Summary

Attorney 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

00:00

📚 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.

05:03

💼 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.

10:05

🏛 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.

Keywords

💡Founders Shares

Founders Shares refer to the initial shares offered to the organizers or promoters of a corporation. These shares often come with special privileges not afforded to other share types, such as the right to vote on directors or be voted as a director. In the video, it is mentioned that these privileges are limited to five years from the date of incorporation, which is a key aspect of understanding the temporal nature of these shares.

💡Redeemable Shares

Redeemable Shares are those that the corporation may buy back from shareholders under certain terms outlined in the articles of incorporation. These shares are also known as callable shares. The video explains that the corporation is not obligated to redeem these shares and that they can be redeemed even without unrestricted retained earnings, which is an exception to the general rule.

💡Unrestricted Retained Earnings

Unrestricted Retained Earnings are profits that a corporation has earned but not set aside for a specific purpose. The video highlights that these earnings are 'free' and can be used for various corporate actions, including the redemption of redeemable shares, which is an exception to the general rule that requires such earnings for a corporation to buy back its own shares.

💡Treasury Shares

Treasury Shares are shares that have been issued, fully paid for, and then reacquired by the corporation. The video clarifies that these shares can be sold again at a price set by the board of directors, unlike redeemable shares which are retired once bought back. Treasury shares that are not sold again become the property of the corporation and are not considered outstanding, meaning they carry no voting rights.

💡Articles of Incorporation

The Articles of Incorporation are the foundational legal documents of a corporation, specifying its purpose, structure, and rules. In the context of the video, it is mentioned that the terms for redeemable shares must be provided in these articles, making them a crucial component in defining the nature and conditions of share issuance and redemption.

💡Directors

Directors are members of the board that oversees the management of a corporation. The video discusses how founders shares come with the special privilege of being voted on as a director, which is a significant aspect of corporate governance and the balance of power within a company.

💡Incorporation

Incorporation is the process of forming a corporation. The video uses the term in relation to the five-year limit on the special privileges of founders shares, counting from the date of incorporation, which is a pivotal moment in the life of a corporation.

💡Reacquisition

Reacquisition refers to the act of a corporation buying back its own shares. The video explains that this can happen for treasury shares and under certain conditions for redeemable shares, which is a strategic move that can impact a company's capital structure.

💡Retired Shares

Retired Shares are those that have been bought back by the corporation and are no longer available for sale or issuance. The video contrasts redeemable shares, which can be retired, with treasury shares, which can be resold, highlighting the different outcomes of share reacquisition.

💡Board of Directors

The Board of Directors is a group responsible for the strategic direction and oversight of a corporation. According to the video, they have the authority to set the price for the resale of treasury shares, demonstrating their role in determining the corporation's financial and operational policies.

💡Outstanding Shares

Outstanding Shares are those that are currently held by shareholders and have not been repurchased by the issuing corporation. The video clarifies that treasury shares, if not sold again, are not considered outstanding and thus do not have voting rights, which is an important concept in understanding shareholder influence and corporate control.

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

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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

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uploads thank you for watching see you

next time in mbl classroom

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you