Citicorp Vickers Philippines, Inc.

June 13, 1990 Citicorp Vickers Philippines, Inc. 5/F Citibank Centre 8741 Paseo de Roxas Makati, Metro Manila Attention : Mr . Norberto C . Nazareno President Gentlemen : This refers to your letter dated May 17, 1990 requesting confirmation on the following views in relation to the question as to whether a 100% foreign stock brokerage house with a seat at MKSE can purchase "A" shares of domestic corporations: a) There is nothing in the law which provides that foreigners cannot buy "A" shares. b) The corporate issuer is the entity responsible in making sure that its percentage ownership is maintained as required by law. c) In case of violation, the sanction is not on the foreign buyer but on the corporate issuer. d) The sanction can be on the foreign buyer but only if he exercises to vote. e) The wholly owned foreign stock brokerage can buy "A" shares and keep them under street certificates for the account of their Filipino clients. While there is nothing in law which provides that foreigners cannot buy "A" shares, under Section 6 of the Corporation Code, stock corporations are authorized to divide shares into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation . Accordingly, a corporation can provide in its articles of incorporation a proviso that a certain class of shares can only be owned by Filipinos. Allowing a foreign corporation to subscribe to "A" shares where under the articles of incorporation it is expressly provided that such class of shares can only be owned by Filipinos is tantamount to amending the articles of incorporation of said corporation. It has to be emphasized that the articles of incorporation or corporate charter can only be amended either by the following methods: 1. by the stockholders and board of directors pursuant to Section 16 of the Corporation Code 2. and by the legislature. It is the inherent power of legislative bodies to amend or repeal their enactments. As the Corporation Code is a component part of the corporate charter of every corporation created under it, an amendment or repeal of the Corporation Code constitutes an amendment or repeal of the corporate charter. Consequently, Congress has the authority to amend and repeal corporate charters , at least insofar as the Corporation Code is concerned, which forms part thereof. (Agbayani, Commercial & Jurisprudence on Commercial Laws of the Philippines) Accordingly, in the absence of a legislative enactment authorizing foreign corporations to invest in "A" shares of domestic corporations, they cannot buy "A" shares, if the articles of incorporation of the corporation expressly allows "A" shares to be held only by citizens of the Philippines. LexLib Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman