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.