What Are Founder's, Redeemable, and Treasury Shares?

TL;DR

Founder's shares offer special privileges to corporation organizers, valid for five years post-incorporation. Redeemable shares can be bought back by the corporation under specified conditions, not requiring unrestricted retained earnings. Treasury shares, reacquired by the corporation, can be resold and require unrestricted retained earnings for buyback.

Transcript

foreign 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 type... Read More

Key Insights

• Founder's shares are given to corporation organizers with special privileges, like voting rights for directors, limited to five years post-incorporation.
• Redeemable shares can be bought back by the corporation without needing unrestricted retained earnings, unlike the general rule for share buybacks.
• The terms for redeeming redeemable shares must be specified in the articles of incorporation and the certificate of stock.
• Treasury shares are reacquired shares that can be resold by the corporation at a price set by the board of directors.
• Treasury shares require unrestricted retained earnings for their buyback, aligning with the general rule under Section 40 of the RCC.
• Once reacquired, treasury shares do not revert to unissued shares but remain as corporate property until resold.
• Redeemable shares, once bought back, are retired and cannot be resold unless stated otherwise in the articles of incorporation.
• Treasury shares do not carry voting rights or shareholder privileges while held by the corporation.

Questions & Answers

Q: What are founder's shares and their privileges?

Founder's shares are issued to the organizers or promoters of a corporation, providing them with special privileges not available to other shareholders. These privileges typically include the right to vote in the election of directors, but this right is limited to a period of five years from the date of the corporation's incorporation.

Q: How do redeemable shares differ from other shares?

Redeemable shares are unique in that they can be repurchased by the corporation from shareholders under specific conditions outlined in the articles of incorporation. Unlike other shares, redeemable shares can be bought back without the need for unrestricted retained earnings, which is an exception to the general rule for corporate share buybacks.

Q: What conditions must be met for redeemable shares to be bought back?

For redeemable shares to be bought back, the conditions must be explicitly stated in the corporation's articles of incorporation and the certificate of stock. These conditions include the time period and terms under which the corporation can opt to redeem the shares, providing flexibility in corporate financial management.

Q: What are treasury shares and how are they managed?

Treasury shares are shares that have been issued and fully paid for, then reacquired by the corporation through purchase, redemption, or donation. These shares do not revert to unissued status and can be resold at a price determined by the board of directors. They require unrestricted retained earnings for buyback, as per Section 40 of the RCC.

Q: Do treasury shares have voting rights?

No, treasury shares do not have voting rights or any shareholder privileges while they are held by the corporation. They are considered corporate property and do not count as outstanding shares, meaning they do not participate in corporate governance or receive dividends until resold to shareholders.

Q: What happens to redeemable shares after buyback?

After redeemable shares are bought back by the corporation, they are typically retired and cannot be resold unless the articles of incorporation specify otherwise. This retirement means the shares are effectively removed from circulation, reducing the total number of outstanding shares in the corporation.

Q: Why are unrestricted retained earnings important for treasury shares?

Unrestricted retained earnings are crucial for the buyback of treasury shares because they represent the corporation's accumulated earnings that are not allocated for specific purposes. This financial reserve is necessary to ensure that the corporation has sufficient funds to reacquire shares without compromising its financial stability.

Q: How do the rules for redeemable and treasury shares differ?

Redeemable shares can be bought back without unrestricted retained earnings, providing flexibility, while treasury shares require such earnings for buyback. Redeemable shares are retired post-buyback unless otherwise stated, whereas treasury shares can be resold, maintaining their status as corporate property until sold again.

Summary & Key Takeaways

• Founder's shares provide special privileges like voting rights for directors to corporation organizers, but these rights expire five years after incorporation. Redeemable shares allow corporations to buy back shares without needing unrestricted retained earnings, a deviation from the general rule.

• Treasury shares are reacquired shares that can be resold by the corporation, unlike redeemable shares which are retired after buyback unless specified otherwise. Treasury shares require unrestricted retained earnings for their buyback, adhering to Section 40 of the RCC.

• While treasury shares are held by the corporation, they do not have voting rights or shareholder privileges, as they are considered corporate property. The terms for redeeming redeemable shares must be outlined in the articles of incorporation and stock certificates.