Judge Pio R. Marcos & Associates

July 1, 1983 Judge Pio R. Marcos & Associates 1554 San Martin Bldg. 1564 A. Mabini, Ermita Manila Sir : This has reference to your letters dated June 17, 1983 and June 20, 1983, requesting the opinion of this Commission on the queries posed therein. It appears therein that a group of Japanese investors plan to organize a corporation under the laws of the Philippines in order to lease a distressed local abaca mill, operate and manage the same, as well as to engage in the trading of abaca pulps for local and foreign marketing. It further appears that the Philippine corporation will be capitalized at P6.0 M, divided into 6,000 common shares with a par value of P1,000.00 each share. The incorporators of this proposed corporation are to be constituted originally by five (5) Filipino citizens, who shall own 70% of the outstanding capital stock and two (2) Japanese citizens; one of which is a partnership, who shall own the remaining 30%. On the basis of the foregoing facts, you now posed the following queries and we have stated the corresponding answers thereto: 1. Can the Japanese investor or shareholder take two seats in the Board of Directors? Please be informed that the Japanese partnership cannot be an incorporator inasmuch as it is a juridical person and Section 10 of the Corporation Code requires that incorporators should be natural persons. The pertinent provision of Sec. 23 of the Corporation Code provides, and we quote: "SECTION 23. ... Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation . . . . A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines." From the foregoing, it is clear that the Japanese individual investor can take one seat in the Board of Directors whereas the Japanese partnership being a juridical person, is not qualified to occupy the position of a director. It cannot act by itself but only through its officers and agents. It cannot attend personally board meetings of the corporation wherein it was elected a director but only through a representative. Under these circumstances, therefore, whoever represents a partnership is doing so in his capacity as the "proxy" of the director. This is not allowed in this jurisdiction considering the well-established principle that "a director may not be represented by a proxy in a meeting of the board". llcd 2. Can the Japanese A partnership Co. Ltd represented by its President in Tokyo be elected as Chairman of the Board of Directors of the proposed Philippine corporations, or as Treasurer, as the case may be. Whatever unfilled up by the Japanese shareholders shall be filled up by the Filipino stockholders. In reply thereto, please be informed that this Commission, in a previous opinion, has ruled that "In firms engaged in wholly or partially nationalized activities, aliens are banned from being appointed to management positions as president, vice-president, treasurer, auditor, etc. of the same companies, pursuant to a ruling of the Ministry of Justice although they can be elected directors in proportion to their allowable participation or share in the capital of such activities in accordance with the Anti-Dummy Law as amended by Presidential Decree No. 715. Corporations engaged in partially nationalized activities which include mining are those organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines". ( Ltr. to Mr. Ulrich Volkel, dtd. June 14, 1982 ) 3. Can the Japanese shareholder be appointed by the Board of Directors of this proposed Philippine corporation as Production Manager, or Production Supervisor, with expertise in abaca? Yes, taking into consideration his technical know-how. Your letter of June 20, 1983 posed the following queries and likewise, we have stated the corresponding answers thereto: a) What instruments or documents that the SEC may require from the Japanese regarding the 30% Japanese investment to the said corporation, if any? Along with the articles of incorporation, the following documents, among others, should be submitted: 1) Xerox copy of passport in the case of non-resident alien incorporator or ACR/ICR of resident alien incorporator; 2) BOI Form No. 504; 3) Proof of remittances of foreign exchange, if foreign currency will be remitted in; 4) Proof that the Filipino incorporators have financial capability to invest the amount required to be fully paid as evidenced by the income tax returns of the Filipino incorporators. b) After the said investment, will our government allow these two (2) Japanese incorporators or shareholders change the status of their individual Japanese passport from that of a "tourist visa" to a "business visa".For a business visa, how many months are they allowed to stay here in the Philippines? We suggest that you address this question to the Ministry of Foreign Affairs. It likewise appears therein that after a month or two, two (2) additional Japanese investors will take five percent (5%) each thus, making the maximum forty percent (40%). LexLib In view thereof, you posed the following queries and we have stated our answers thereto: 1) Can the additional two (2) Japanese investors who subscribed 5% each or a total additional 10% take also two (2) seats on the Board of Directors, adjusting the number of membership from 7 to 9? This is still allowable as long as the Filipino members of the board of directors retain the majority seats in the board and the articles of incorporation are amended to reflect the change in the number of directors in accordance with Sec. 16 of the Corporation Code. 2) What instruments or documents that the SEC may require from these two (2) Japanese regarding the additional 10% Japanese (foreigner) interest or equity holdings? An amended articles of incorporation wherein the change in the number of directors is reflected. The amended articles should be accompanied by a directors' certificate on the approval of said amendment. Likewise, the amended articles of incorporation have to be indorsed to the Board of Investments for approval since the proposed stockholdings of aliens would exceed 30% of the outstanding capital stock. 3) In the event one of these is disqualified or not allowed to take a seat in the Board of Directors, may the disqualified Japanese shareholder be also one of the management officers, or in the abaca production manager, or Production Supervisor being an expert also in abaca pulp selection and in abaca fiber processing into high grade quality for export not only to Japan but to Europe also. Anent thereto, he cannot be one of the management officers but he can be appointed production manager or supervisor. Please be guided accordingly. Very truly yours, (SGD.) JESUS J. VALDES Associate Commissioner