A corporation may divide its shares into classes with different rights, subject to the law. Common shares represent the residual ownership, carry voting rights, and share in profits after preferred claims. Preferred shares have preferences (such as priority in dividends or in the distribution of assets on liquidation) and may have limited or no voting rights, but there are matters where even non-voting shares are entitled to vote (such as amendments affecting them, sale of all assets, merger, and dissolution). Treasury shares are shares that were issued and fully paid, then reacquired by the corporation (by purchase, redemption, donation, or otherwise); while held as treasury, they have no voting rights and earn no dividends, because a corporation cannot vote or receive dividends on its own shares; they may be reissued or resold. Redeemable shares are shares that may be purchased or taken up by the corporation upon the expiration of a fixed period or at the option of the corporation or the holder, under the terms in the articles, and they may be redeemed regardless of unrestricted retained earnings if the terms so provide, subject to solvency.
Not all shares are the same. A corporation can create different classes of shares with different rights — and some, like treasury and redeemable shares, work in unusual ways.
Common Shares
Common shares represent the residual ownership of the corporation. They typically:
- Carry voting rights;
- Share in profits (dividends) after preferred claims; and
- Share in the net assets on liquidation after creditors and preferred shares.
Preferred Shares
Preferred shares have preferences, such as:
- Priority in dividends; or
- Priority in the distribution of assets on liquidation.
They may have limited or no voting rights. But even non-voting shares are entitled to vote on certain fundamental matters — such as amendments affecting them, sale of all or substantially all assets, merger or consolidation, incurring bonded indebtedness, and dissolution.
Treasury Shares
Treasury shares are shares that were issued and fully paid, then reacquired by the corporation (by purchase, redemption, donation, or otherwise). While held as treasury:
- They have no voting rights; and
- They earn no dividends,
because a corporation cannot vote or receive dividends on its own shares. Treasury shares may later be reissued or resold.
Redeemable Shares
Redeemable shares are shares that may be purchased or taken up by the corporation:
- Upon the expiration of a fixed period; or
- At the option of the corporation or the holder,
under the terms stated in the articles. Notably, redeemable shares may be redeemed regardless of unrestricted retained earnings if the terms so provide — an exception to the usual rule — but always subject to solvency (the corporation must remain able to pay its debts as they fall due).
Practical Takeaways
- Common shares carry voting and residual rights; preferred shares have preferences but limited voting (with exceptions for fundamental matters);
- Treasury shares are the corporation's own reacquired shares — no vote, no dividends while held, but reissuable;
- Redeemable shares can be bought back per the articles' terms, even without unrestricted retained earnings if so provided, but always subject to solvency.
Frequently Asked Questions
What is the difference between common and preferred shares? Common shares represent residual ownership, carry voting rights, and share in profits after preferred claims. Preferred shares have preferences, such as priority in dividends or in liquidation, and may have limited or no voting rights.
What are treasury shares? Shares that were issued and fully paid, then reacquired by the corporation. While held as treasury, they have no voting rights and earn no dividends, because a corporation cannot vote or receive dividends on its own shares. They may be reissued.
What are redeemable shares? Shares that may be purchased or taken up by the corporation upon the expiration of a fixed period or at the option of the corporation or holder, under the terms in the articles. They may be redeemed even without unrestricted retained earnings if the terms so provide, subject to solvency.
Can non-voting preferred shares ever vote? Yes. Even non-voting shares are entitled to vote on certain fundamental matters, such as amendments affecting them, sale of all or substantially all assets, merger or consolidation, incurring bonded indebtedness, and dissolution.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.