The document discusses the voting rights of shareholders, o However, it does not automatically grant

specifically in the context of different classes of shares voting rights unless specified in the
(Class "A" and Class "B") in a corporation. It explains Articles of Incorporation.
whether Class "B" shareholders can be deprived of their o Dividends for preferred shares are
right to vote and be elected as directors, referencing legal typically fixed and paid before common
provisions from the Corporation Code (Batas Pambansa Blg. stockholders receive any.
68) and amendments made to the Articles of Incorporation. 3. Redeemable Shares:
Key Points from the Document: o Can be bought back by the corporation if
1. General Rule on Voting Rights: specified in the Articles of Incorporation.
o Shareholders generally have the inherent o These shares may be deprived of voting
right to vote in corporate matters, as it is a rights.
fundamental part of stock ownership. Conclusion:
o This right cannot be removed arbitrarily by  The case discussed revolves around the legal
the corporation, legislature, or through by- interpretation of voting rights in the context of
laws unless specific legal provisions allow amendments to the Articles of Incorporation.
it.  Since Class "B" shares were not classified as
2. Legal Basis for Exceptions: preferred or redeemable, they retain their voting
o The Corporation Code (B.P. Blg. 68) rights under the law.
states that "no share may be deprived of  The right to vote is a fundamental stockholder
voting rights except those classified privilege unless explicitly removed through
and issued as 'preferred' or proper classification under the Corporation Code.
'redeemable' shares, unless otherwise
provided in this Code." Expanded Explanation with Additional Information
o Additionally, the law mandates that "there The content discusses the different classifications of
shall always be a class or series of corporate shares, their associated rights and limitations, and
shares which have complete voting the circumstances under which non-voting shareholders may
rights." still participate in corporate decisions. Below, I have
o This means that voting rights can only be expanded on each section with additional details, examples,
removed from shares if they are properly and relevant legal implications.
classified as "preferred" or "redeemable"
shares. I. Non-Voting Shares and When They Can Vote
3. Application to Class "B" Shares of M Corp.:
General Rule:
o When the Articles of Incorporation of M
Corp. were amended in 1992, the phrase By default, some shares are classified as non-voting
"except when otherwise provided by shares. This means that their holders do not have a say in
law" was added concerning the grant of regular corporate decisions like electing directors or
voting rights to Class "A" shareholders. approving company policies. However, the law recognizes
o This amendment was interpreted as an situations where non-voting shareholders must be given a
voice.
exclusive grant of voting rights to Class
8 Situations Where Non-Voting Shareholders Can Vote:
"A" stockholders.
o However, the law applied at the time (B.P. Even if shares are non-voting, holders can still vote in these
crucial decisions:
Blg. 68) only allows the removal of voting
1. Amendments to the Articles of Incorporation
rights for properly classified "preferred" or
"redeemable" shares.
o If the company decides to change its
o Since the Articles of Incorporation did not corporate name, objectives, structure, or
other fundamental aspects, non-voting
classify Class "B" shares as either
shareholders must participate.
"preferred" or "redeemable," they cannot
be deprived of voting rights.
o Example: If a corporation originally
o The only logical conclusion is that Class established for manufacturing decides to
shift to real estate, this requires an
"B" shareholders retain their right to vote
amendment, allowing all shareholders
and be elected as directors.
(including non-voting ones) to vote.
2. Adoption and Amendment of By-Laws
Types of Shares and Their Voting Rights:
o By-laws dictate corporate governance,
1. Common Stock:
such as meeting schedules, voting
o Entitled to vote on corporate matters.
procedures, and director qualifications.
o Entitled to dividends and a share of the Non-voting shareholders must vote on
company’s assets upon liquidation. changes.
o Has no preference in dividends or o Example: If a corporation changes its
liquidation. board election rules, non-voting
o Referred to as capital stock or ordinary shareholders can vote on the amendment.
shares. 3. Sale, Lease, Exchange, or Mortgage of
2. Preferred Stock: Substantial Corporate Assets
o Comes with certain advantages over o If a company decides to sell off its main
common stock, such as priority in property or assets, non-voting
dividends or asset distribution in case of shareholders must have a say.
liquidation. o Example: If a real estate company plans to
sell all its properties to another firm, non-
 voting shareholders can participate in the o Banks
decision. o Trust and insurance companies
o Pre-need companies
o Public utilities (electricity, water,
telecommunications)
4. Incurring or Increasing Corporate Debt o Other corporations that raise money from
o Issuing bonds or taking on large loans that
the public
could affect the company’s financial health This limitation ensures that financial institutions and
requires approval from all shareholders. essential service providers cannot issue shares with
o Example: A corporation decides to issue uncertain values, protecting public investors.
₱500 million in corporate bonds,
increasing its debt obligations. Non-voting
III. Special Types of Shares and Their Uses
shareholders can vote on this move.
5. Increase or Decrease in Authorized Capital 1. Promotional Shares
Stock  Given to founders, promoters, or those who
o If the company increases its number of helped launch the company.
shares or reduces them, all shareholders  Often serve as a reward for their initial investment
must vote. and effort.
o Example: A corporation decides to double  Example: A startup grants promotional shares to its
its authorized shares from 1 million to 2 first five investors who took the risk of funding the
million to raise more capital. This affects business before it was successful.
all shareholders, so non-voting 2. Shares in Escrow
shareholders can vote on it.  Shares held by a third party until a specific
6. Mergers or Consolidations condition is met.
o If a company merges with another or is  Example: A company issues shares to an
acquired, non-voting shareholders must be employee, but they are held in escrow until the
involved. employee stays with the company for 5 years.
o Example: A tech company merges with 3. Fractional Shares
another to expand operations. Even non-  Shares that are less than one full share, often
voting shareholders have a right to issued due to stock splits or dividend reinvestment
approve or reject the merger. plans.
7. Investment of Corporate Funds in Another  Example: If a shareholder is entitled to 1.5 shares
Business in a stock split, they receive one full share and a
o If the company decides to invest in fractional share.
another corporation, all shareholders can 4. Over-Issued Stock
vote.  Illegal shares issued beyond the authorized capital
o Example: A construction company decides stock.
to invest 30% of its capital into a mining  If a corporation is only authorized to issue 1 million
business. This requires a vote from all shares but mistakenly sells 1.2 million, the extra
shareholders, including non-voting ones. 200,000 shares are void.
8. Dissolution of the Corporation 5. Convertible Shares
o If a company is closing down, all  Can be converted from one type to another at a
shareholders have a right to vote on it. predetermined rate.
o Example: If an airline company decides to  Example: Preferred shares that can be converted
shut down due to financial losses, non- into common shares after 5 years.
voting shareholders participate in the
decision. IV. Founders’ Shares – Exclusive Privileges and Restrictions
Important Note: Even if shares are classified as non-voting, What Are Founders’ Shares?
the law protects shareholders from major corporate  These shares are given exclusively to the
decisions being made without their input in these crucial company’s original founders or key investors.
situations.  They often come with special privileges, such as:
o Exclusive voting rights
II. Share Classifications and Additional Details o Higher dividend payouts
1. Par Value Shares vs. No-Par Value Shares o Board membership rights
 Par Value Shares – These have a fixed value per
share. Example: If a share has a ₱10 par value, it Restrictions on Founders' Shares:
cannot be sold for less than that. 1. Voting Rights Are Limited to 5 Years
 No-Par Value Shares – These have no fixed o If founders are granted exclusive voting
minimum price but must still meet legal rights, this privilege must expire within 5
requirements (e.g., minimum issuance price of years of incorporation.
₱5.00). o This prevents long-term monopolization of
Additional Insights on No-Par Value Shares:
corporate control.
 Unlike par value shares, which guarantee a 2. Must Comply with Foreign Investment and Anti-
minimum price for issuance, no-par value shares Dummy Laws
provide more flexibility to corporations in pricing o Founders’ shares must not violate:
their shares.  The Anti-Dummy Law
 However, they cannot be issued by: (Commonwealth Act No. 108)
  The Foreign Investments Act 3. Legal Limitations on Redeemable Shares
(RA 7042) A company’s ability to issue and redeem shares is subject to
o Example: A foreign investor cannot use these legal conditions:
founders’ shares to bypass ownership 1. Must be stated in the Articles of Incorporation.
restrictions in certain industries. o If redeemable shares are not mentioned in
Key Takeaway: Founders’ shares are designed to reward the corporate charter, the company
the original creators of a company but are legally cannot issue them.
regulated to prevent abuse. 2. Terms of redemption must be specified in both
the Articles of Incorporation and the Stock
Final Thoughts Certificate.
This expanded discussion provides deeper insight into o These terms include redemption price,
shareholder rights, the legal framework governing different date, and process.
stock types, and the balance between corporate control and 3. Redeemable shares may be deprived of voting
investor protection. The main takeaways are: rights.
1. Even non-voting shareholders have key rights o Unlike common shares, redeemable
in major corporate decisions. shares may have limited or no voting
2. Par value and no-par value shares have distinct power.
financial and legal implications. 4. Redemption cannot result in insolvency.
3. Special shares serve different purposes, from o If redeeming shares will cause the
rewarding founders to enabling investment company to go bankrupt, it is strictly
flexibility. prohibited.
4. Founders’ shares provide benefits but are Example of an Illegal Redemption:
subject to strict regulations.  A corporation redeems ₱500 million worth of shares
but is left with only ₱100 million in assets and
It looks like this section discusses Redeemable Shares and ₱400 million in liabilities.
their legal and financial implications. Below, I have expanded  This means the company is effectively bankrupt
on the information provided and included additional insights and cannot meet its financial obligations.
for better clarity.  Because of this, the redemption would not be
allowed.
Redeemable Shares: Expanded Explanation
1. Definition of Redeemable Shares 4. Types of Redeemable Shares
Redeemable shares are a special class of preferred Redeemable shares are classified into two types based on
shares that can be repurchased (redeemed) by the issuing whether the corporation is required to repurchase them.
corporation at a fixed date or at the option of the A. Compulsory Redemption
company, shareholder, or both.  The company must redeem the shares when the
agreed redemption period arrives.
Key Features of Redeemable Shares:  Typically used when investors need liquidity at a
 The terms of redemption must be specified in the future date.
Articles of Incorporation.  Example: A company issues redeemable shares
 These shares can be redeemed regardless of that must be repurchased after five years.
unrestricted retained earnings, but only if the B. Optional Redemption
company still has enough assets after redemption  The company may or may not redeem the shares,
to cover its debts and liabilities. depending on its financial position.
 Redemption cannot occur if it will cause insolvency  If specified, shareholders may also have the
or financial distress to the corporation. option to request redemption.
 Example: A company states in its stock certificate
2. New Provision: Redemption Even Without Unrestricted that it “may redeem shares at any time after two
Retained Earnings years at the company’s discretion.”
Traditionally, a company could only redeem its shares if it
had enough retained earnings. However, under current 5. Case Study: Y Corp vs. X Bank
corporate laws, redemption is allowed even if there are This case highlights the importance of redemption terms
no unrestricted retained earnings, as long as: in stock certificates.
 The company still has enough assets to cover Facts:
debts and liabilities.  Y Corp borrowed ₱120,000 from X Bank.
 The redemption will not result in insolvency.  As part of the repayment, Y Corp issued preferred
Example:
shares to X Bank instead of cash.
 A company issues redeemable preferred shares to  These shares had two key terms:
investors and later decides to redeem them, even
1. A quarterly dividend of 1%.
though it has no unrestricted retained earnings.
2. The option to redeem the shares at any
 If the company still has enough assets to cover its time after two years from issuance.
debts after the redemption, the buyback is legally  Later, Y Corp wanted X Bank to redeem the
allowed.
shares, but X Bank refused.
 If redemption would leave the company unable to  Y Corp filed a complaint, arguing that X Bank must
pay debts, it is prohibited.
redeem the shares.
Court Ruling:
 The stock certificate explicitly stated that
redemption was at X Bank’s option.
  This means redemption was NOT mandatory.
 The Central Bank also found that X Bank had a
chronic reserve deficiency, meaning it lacked
sufficient liquidity.
 The Central Bank Prohibited X Bank from
redeeming shares because doing so would harm
depositors and creditors.
 Verdict: X Bank was not obligated to redeem the
shares.
Key Takeaways from the Case:
1. Redemption rights depend on the stock
certificate terms.
o If redemption is optional, the corporation
cannot force it.
2. Regulatory agencies can prohibit redemption to
protect financial stability.
o In this case, the Central Bank prevented X
Bank from redeeming shares because it
would harm public trust in banking.
3. Investors must carefully review stock
certificates before purchasing shares.
o If shares are not “compulsory
redeemable,” investors cannot demand
redemption.

6. Practical Applications of Redeemable Shares

A. Why Companies Issue Redeemable Shares
 Flexible financing – Companies can raise capital
without permanently increasing shareholders.
 Attract investors – Some investors prefer
redeemable shares as they provide exit
opportunities.
 Dividend control – Corporations can retire high-
dividend shares when interest rates fall.
B. Why Investors Buy Redeemable Shares
 Steady income – Many redeemable shares come
with guaranteed dividends.
 Lower risk – Investors can exit their position if the
shares are redeemable at a fixed date.
7. Conclusion: Important Lessons
 Always check stock certificates – Redemption
terms vary between companies.
 Redemption is NOT always mandatory – If the
terms state redemption is optional, the issuing
company can refuse to buy back shares.
 Regulatory agencies can override redemption
rights – If a company is in financial distress,
regulators can prohibit redemptions to protect
creditors.
 Companies must ensure solvency before
redeeming shares – A corporation cannot redeem
shares if it would leave them unable to pay debts.