Atty. K.D.M. Asuncion

September 8, 1992 Atty. K.D.M. Asuncion Ermitano, Asuncion, Manzano & Associates Suite 1403 Pacific Bank Building 6776 Ayala Avenue, Makati, Metro Manila S i r : This refers to your letter of May 7, 1992 requesting for a ruling that a 60% Filipino and 40% foreign owned domestic corporation organized for the primary purpose of providing management training programs, seminars and consultancy, with an authorized capital of P1 Million and subscribed and paid-up capital of P250,000.00, may elect a non-Filipino president. cdlex Section 8 of R.A. 7042 otherwise known as the Foreign Investments Act of 1991, expressly provides that "small and medium-sized domestic market enterprises with a paid-in equity capital of less than the equivalent of five hundred thousand U.S. dollars ($500,000) are reserved to Philippine Nationals ." The term "Philippine National" is defined under Section 3 of said Law as "a citizen of Philippine or domestic partnership or association wholly owned by citizens of the Philippines or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines." Corollary thereto, the Transitory Negative List B limits foreign equity participation in a domestic enterprise with paid-in equity capital of less than US $500,000 to only 40%. Thus, the business activity of a domestic corporation with 40% foreign equity participation whose paid-in equity is less than the equivalent of US $500,000 is considered a nationalized business, and hence, subject to the following provision of Commonwealth Act No. 108, as amended by P.D. 715, otherwise known as the Anti-Dummy Law; "SECTION 2-A. Any person, corporation or association which, having in its name or under its control, a right, franchise, privilege, property or business, the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens of the Philippines or of any other specific country, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, permits or allows the use, exploitation or enjoyment thereof by a person, corporations or association not possessing the requisites prescribed by the Constitution or the laws of the Philippines; or leases, or in any other way, transfers or conveys said right, franchise, privilege, property or business to a person, corporation or association not otherwise qualified under the Constitution, or the provisions of the existing laws; or in any manner permits or allows any person, not possessing the qualifications required by the Constitution, or existing laws to acquire, use exploit or enjoy a right, franchise, privilege, property or business, the exercise and enjoyment of which are expressly reserved by the Constitution or existing laws to citizens of the Philippines or of any other specific country, to intervene in the management, operation, administration or control thereof, whether as an officer ,employee or laborer therein with or without remuneration except technical personnel whose employment may be specifically authorized by the Secretary of Justice, and any person who knowingly aids, assists or abets in the planning, consummation, or perpetration of any of the acts herein above enumerated shall be punished by imprisonment for not less than five or more than fifteen years and by a fine of not less than the value of the right, franchise or privilege enjoyed or acquired in violation of the provisions hereof but in no case less than five thousand pesos: Provided, however, That the president, managers or persons in charge of corporations, associations or partnerships violating the provisions of this section shall be criminally liable in lieu thereof: Provided, further, That any person, corporation or association shall, in addition to the penalty imposed herein, forfeit such right, franchise, privilege, and the property or business enjoyed or acquired in violation of the provisions of this Act: And provided, finally, That the election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities. (Emphasis supplied) LexLib Accordingly, the Commission, in its meeting of September 3, 1992, ruled that a foreigner cannot be elected as president in a domestic corporation owned by 60% Filipino citizens and 40% non-Philippine nationals whose paid-in equity participation is less than US $500,000, the same being considered a nationalized business reserved to Philippine Nationals by virtue of the Foreign Investments Act of 1991. This ruling is in consonance with the previous ruling of the Department of Justice Re: Opinion No. 37, Series 1976, stating 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 said companies, although they can be elected directors in proportion to their allowable participation or share in the capital of such activities in accordance with Commonwealth Act No. 108, as amended by P.D. 715, otherwise known as the Anti-dummy Law. To be able to elect a foreign national as president, the corporation should meet the required minimum capital requirement under the Foreign Investments Act of 1991. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman