1.

2.
3.
4.

CLASSES OF SHARES
These shares represent ownership or capitals

Common shares or preferred share

Par Value or no Par value
Founder Shares
Treasury shares
CAPITAL STRUCTURE
- Capital structure may be Stock or Non-Stock.

CAPITAL STOCK - is the amount fixed in the articles of incorporation, to be subscribed and paid by the stockholders
of the corporation.
CAPITAL is the asset minus the liabilities; Net assets which is utilized for the prosecution of the business of the
corporation. It refers to legal capital plus all the other assets of the corporation minus the liabilities.
LEGAL CAPITAL the amount in the capital that may not be distributed to the stockholders because these are held in
trust by the corporation for its creditors. This amount refers to the Subscribed Capital Stocks.
This is the amount that no one can touch because the amount is intended for the benefit of the creditors. This can not
be distributed back or as dividends. This doctrine is called the Trust Fund Doctrine. This refers to the Subscribed
Capital Stock Paid or Unpaid. Even the Unpaid portion is held in trust for the creditors. Therefore the creditors can go
after the unpaid portion which is in the possession of the stockholders.
True or False :Capital is higher than Legal Capital.
ANS: False, because Capital Fluctuates. It might be higher. It might be lower. Sometimes Capital is higher than legal
capital because if there are more profits, the capital could go up, while Legal Capital is fixed because this represents
the subscribed capital.
TYPES OF SHARES
Preferred Shares
Stocks issued by the corporation which enjoy certain preferences of certain rights such as preferences on the time of
payment, amount of dividends and some other privileges that may attach to the shares of stocks.
Common Shares
There is no preferential rights are attached
Founders Shares
These are shares issued to the founders of the corporation where they enjoy certain privileges such as the right to vote
and the exclusive right to be voted for. This right is limited only for a period of 5 years from the existence of the
corporation.
Sec. 7. Founders' shares. - Founders' shares classified as such in the articles of incorporation may be given certain
rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be
voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to
the approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the
aforesaid approval by the Securities and Exchange Commission.
PURPOSE OF FOUNDERS SHARES
The founders exercise certain privileges like EXCLUSIVE RIGHT to be voted for limited to first 5 years of existence of
the company. Purpose is to allow the founders to sit on the board to carry out their plan, vision or target
considering that they were the ones who founded or wanted to bring about the existence of the
company. They have the idea on how the business is to be undertaken. The law is simply giving them the chance
which is 5 years to carry out their plan, vision or target and make the corporation as profitable as possible.
These are given only to those who founded/organized the corporation. These are GIVEN ONLY ONCE -- at the start of
the corporation to the founding incorporators or parties.
PAR VALUE SHARES
These are shares that have a specific value fixed in the Articles of Incorporation and appearing in the Certificate of
Stock.
NO PAR VALUE SHARES
These are shares that do not have a specific value appearing on the Certificate of Stock but should not be issued for a
consideration of less than five (P5) pesos.

REDEEMABLE SHARES
Sec. 8. Redeemable shares. - Redeemable shares may be issued by the corporation when expressly so provided in the
articles of incorporation. They may be purchased or taken up by the corporation 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 as may be stated in the articles of incorporation, which terms and conditions must also be stated
in the certificate of stock representing said shares.
Shares redeemable at a fixed date or at the option of either the issuing corporation or the stockholder or both at a
certain redemption price. They are issued when the corporation needs additional capital
What happens is that the corporation has options when it needs additional capital like:
(1) going to a bank to obtain a loan; or
(2) go to existing stockholders and ask them if they are willing to invest additional capital/increase their
current subscription; or
(3) go and reach out to the public by issuing new shares in the form of redeemable shares.
Bank may not be favored as interest might be high and there may be a need for many collaterals which the company
might not have therefore making it difficult to borrow from the bank. Stockholders may or may not be convinced to
subscribe to additional shares of stock
HOW IS REDEEMABLE SHARES DONE?
The company will sell you shares at this time worth One Hundred (P100) Pesos per share and then six months after we
will buy it back at One Hundred Twenty Five (P125) Pesos per share or at a twenty five (25%) percent profit only after
six months. Which is big enough. Or even after one (1) year you will have your twenty five (25%) percent.
Compared to bank rates which is currently at 0.0001 or 0.01% (not sure if sakto ni na amount di maklaro pila jud ka
zero) so the redeemable shares are more advantageous. Aside from the guaranty of being redeemed there could be an
additional attraction like if dividends are declared within the year, you will be entitled to such dividends (double
whammy), get assured interest or guaranteed interest plus a possibility of a dividend.
So this is the nature of redeemable shares, it is a way of sourcing out funds from the public. Sometimes what are
issued are Pro Notes (Promissory Notes) or Commercial papers but these are different from redeemable shares
because you are a stockholder when it comes to redeemable shares so that when dividends are declared, you are
entitled.
TREASURY SHARES
Sec. 9. Treasury shares. - Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful
means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.
Shares which have been lawfully issued by the corporation and fully paid for and later reacquired by it either by
purchase, redemption, donation, forfeiture or other lawful means.
Best example is the redeemable shares. Once they are redeemed, the corporation gets back the shares and therefore
the shares are back into the coffers of the corporation becoming part of the assets of the corporation because they
represent value which they can later on sell these shares again.
CONVERTIBLE SHARES
Shares convertible to something else upon the occurrence of certain conditions
Example: Non-voting share to voting share upon the fulfillment

of

certain

conditions

imposed.

Refresher: Voting shares are shares entitled to vote/to elect directors. Non-voting shares are shares not entitled to
vote/to elect directors.
Non-voting shares are not absolutely denied the right to vote like:
Amendment of AOI
Increase or decrease of capital stock.