How to Effectively Evaluate Compliance with Equity Requirement Where Shareholdings Are Individually Held by a Filipina and Her Foreigner Husband

DOJ OPINION NO. 017, s. 2017 June 16, 2017 Executive Director Carmelo L. Arcilla Civil Aeronautics Board CAB Building, Old MIA Road Pasay City Dear Executive Director Arcilla : This refers to your request for clarification and guidance as to how to effectively evaluate compliance with the equity requirement where shareholdings are individually held by spouses, the wife being a Filipino and the husband a foreign national. HTcADC You state that Corporation A is a Filipino corporation duly registered with the Securities and Exchange Commission (SEC) with an authorized capital stock of Php12 million divided into 12,000,000 shares with a par value of Php1.00 each, fully subscribed and paid by the stockholders applying for a permit to operate public transport (Cebutop, Inc.). You also state that based on the citizenship and the amount of stocks subscribed and paid by the stockholders, the corporation complied with the 60-40 equity requirement of a nationalized industry; that you raise doubt as to who has the "beneficial ownership" and "control" of the corporation; that it appears that Ms. Sakurai and Mr. Sakurai are spouses; and that absent any proof to the contrary, it is presumed that properties and resources are owned in common by the spouses and, thus, raises the question whether or not "beneficial ownership" and "control" of the corporation, though compliant with the 60-40 requirement, in fact, reside in Filipino shareholders and not in foreign stakeholders. You also state that DOJ Opinion No. 165, Series of 1984, applying pertinent provisions of the Anti-Dummy Law, in relation to the minimum Filipino equity requirement in the Constitution, laid down "significant indicators of the dummy status" recognizing reports "that some Filipino investors or businessmen are being utilized or [are] allowing themselves to be used as dummies by foreign investors" specifically in joint ventures for national resource exploitation. These indicators are: 1. That the foreign investors provide practically all the funds for the joint investment undertaken by these Filipino businessmen and their foreign partner; 2. That the foreign investors undertake to provide practically all the technological support for the joint venture; 3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability studies. At the outset, we note that based on the facts that you have presented, it appears that the corporation has complied with the equity requirement of a partly nationalized industry. However, in order to ascertain as to who has the "beneficial ownership" of the shares of stock will require an investigation which will fall within the competence of the Securities and Exchange Commission (SEC). It is suggested that you solicit the views of the SEC through their Company Registration and Monitoring Division to see if there is a possible violation of the Anti-Dummy law in relation to the equity requirement of the corporation. CAIHTE In addition, for your information and guidance only, you may also refer to Opinion No. 20, 2005, herein attached, wherein we discussed the test in determining the nationality of a corporation under the "liberal rule or control test" or the "strict rule or grandfather rule." We also reiterate the cited Opinion No. 165 insofar as the indicators are still relevant up to the present time and that we are quoting herein Section 2 of Commonwealth Act No. 108 or the Anti-Dummy law which may be relevant your query, to wit: " Section 2. Simulation of minimum capital stock. In all cases in which a constitutional or legal provision requires that, in order that a corporation or association may exercise or enjoy a right, franchise or privilege, not less than a certain per centum of its capital must be owned by citizens of the Philippines or of any other specific country, it shall be unlawful to falsely simulate the existence of such minimum stock or capital as owned by such citizens, for the purpose of evading said provision. x x x." Finally, violation of the Anti-Dummy law is a criminal offense which is cognizable by the Department's Prosecutors, thus, any opinion that the undersigned may render would have no useful purpose for said opinion or ruling would neither be conclusive nor binding upon the prosecuting officers upon whom under the law devolve the duty of deciding whether or not to file a complaint for violation of the law, after an investigation of the facts of the case and a determination of the sufficiency of the evidence to warrant a prosecution ( Maddela vs. Aquino ,104 Phil. 133).While the Secretary of Justice is given the power to review, revise or reverse the said findings of the prosecuting officers, the latter are given the widest leeway in the exercise of the discretion, which discretion must be "free from pressure and other irrelevant considerations." 1 Please be guided accordingly. Very truly yours, (SGD.) VITALIANO N. AGUIRRE II Secretary Footnotes 1. DOJ Opinion No. 25, s. 2008.