Section 8 pertains to redeemable shares as shares of stocks that can be repurchased by the

corporation or stockholder (can be both) after a predetermined date or the expiration of a fixed
period at a redemption price which can be cash or property.
These shares are usually preferred shares, but they do not have to be preferred shares to be
redeemable shares.
It is important to note that the redemption of the stocks is a repurchase of it for cancellation
because once redeemed they are retired unless reissuance is expressly allowed in the articles of
incorporation.
The present code allows the redemption of shares even if there are no unrestricted retained
earnings on the corporation’s books
(Retained unrestricted earnings is a term used in the corporate world to refer to profits a business has
accumulated since its creation that it has not distributed to stockholders as dividends.
Retained earnings are corporations accumulated income after the dividends have been distributed).

It qualifies the general rule that the corporation cannot purchase its own shares out of current
retained earnings. Trust fund doctrine.
However, the purchase must be upon such term that the shares to be redeemed are redeemable as
provided in the AOI and certificates of stock and ultimately, there must be sufficient assets to
cover the debts and liabilities of the corporation to redeem the shares.
All of which subject to the rules and regulations issued by the SEC [because they need to be able
to meet their debts as they mature]
Limitations on Redeemable shares:
1. It must be expressly provided in the articles of incorporation.
2. The terms and conditions affecting said shares must be stated both in the AOI and in the
certificate of stock
3. It may be deprived of voting rights in the articles of incorporation (sec 6 but can vote on
other circumstances)
4. Redemption cannot be made if it will cause the insolvency of the corporation.
Kinds of redeemable shares:
1. Compulsory – corporation is required to redeem the shares
2. Optional – corporation is not mandated to redeem the shares
When the corporation redeems shares coming from:
1. Those issued upon establishment of The concurrent value of acquisition will NOT
the corporation or BE SUBJECT TO TAX.
2. initial capital contribution It is a return of investment
but
1. Previously declared stock dividends Subject to tax because it constitutes additional
wealth – not a return of capital but a gain.
TFD
- The trust fund doctrine provides that the capital stock, property and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors.
Subscriptions to the capital stock of a corporation constitute a fund to which creditors
have a right to look for the satisfaction of their claims.
- corporate creditors are preferred over stockholders in the distribution of corporate
assets
- This is the underlying principle in the procedure for the distribution of capital assets
- Allows the distribution of corporate capital only in 3 instances:
o Amendment of the AOI to reduce the authorized capital stock.
o Purchase redeemable shares by the corporation, regardless of URE
o Dissolution and eventual liquidation of the corporation.
- The principle laid out by the doctrine clearly prohibits the corporation from
distributing its capital assets and properties to its stockholders ahead of its
corporate creditors. There can be no distribution of assets among stockholders
without paying the creditors first, and for this reason any disposition of corporate
funds to the prejudice of creditors is null and void
- Unappropriated retained earnings help to determine the amount of dividends that will
be paid to shareholders. They are not directed towards a specific purpose by the board
and therefore are available to be paid out as dividends. The greater the unappropriated
retained earnings, the higher the dividend that can possibly be paid.