WHAT ARE REDEEMABLE SHARES?

After reading “What are Redeemable Shares?”, read also “What are Founders’ Shares?”

• Redeemable Shares are shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period.

• Redeemable Shares are either compulsory or optional.

• Redemption may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature.

Redeemable Shares 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. Redeemable Shares are either compulsory which are shares that the corporation is required to redeem, or optional which are shares that the corporation is not mandated to redeem.

The Revised Corporation Code of the Philippines (RCCP) made the redemption subject to the rules and regulations that may be issued by the Securities and Exchange Commission (SEC), in addition to what may be stipulated in the Articles of Incorporation and Certificate of Stock.

 

What are the Special Rules on Redeemable Shares? The law says:

1. Redeemable shares may be issued by the corporation only when it is expressly authorized by the Articles of Incorporation;
2. The terms and conditions affecting redeemable shares must be stated both in the Articles of Incorporation and in the certificates of stock representing such shares; and
3. Redeemable shares may be deprived of voting rights in the Articles of Incorporation unless otherwise provided. (Sections 6 and 8, RCCP)

 

Moreover, redeemable shares are not without limitations. The limitations are provided for both in jurisprudence and law. The limitations of Redeemable Shares are:

1. Redeemable shares may be issued only when expressly provided for in the Articles of Incorporation. (Section 8, RCCP)

 

2. The terms and conditions affecting said shares must be stated both in the AOI and in the certificate of stock. (Section 8, RCCP)

 

3. Redeemable shares may be deprived of voting rights in the Articles of Incorporation. (Section 6, RCCP)

 

4. The corporation is required to maintain a sinking fund to answer for redemption price if the corporation is required to redeem. (SEC-OGC Opinion No. 07-03)

 

5. The redeemable shares are deemed retired upon redemption, unless otherwise provided in the AOI. (SEC Rules Governing Redeemable and Treasury Shares, 26 April 1982)

 

6. Unrestricted retained earnings are not necessary before shares can be redeemed, but there must be sufficient assets to pay the creditors and to answer for operations. (Republic Planters Banks v. Agana, G.R. No. 51765, March 3, 1997)

 

 

When may redemption not be made? Jurisprudence says:

Redemption, therefore, may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature. (Republic Planters Banks v. Agana, G.R. No. 51765, March 3, 1997)

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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