Atty. Solgrandioso A. David, Jr.

October 14, 1991 Atty. Solgrandioso A. David, Jr. 5th Floor, Chronicle Building Meralco Avenue, Pasig, Metro Manila S i r : This refers to your letter dated September 26, 1991 requesting opinion on the query posed therein. As stated, one of your clients, a public utility corporation, desires to have the participation of foreign investors in its business. Under the Constitution, the allowable foreign investment in public utility is only up to the extent of 40% of the outstanding capital stock and foreign participation in the governing body shall be limited to their proportionate share in the capital. Thus, if the company's Board of Directors is composed of nine (9) members, foreign investors are entitled only to 40% of the nine (9) seats. By mathematical computation, it would appear that 40% of 9 would be 3.6 and 60% is 5.4. Your query is, how many seats are foreign investors entitled to, considering that there is a resulting fractional number after computing the percentage ratio. Under the accepted rule on rounding off of numbers, it is so stated that the decimal figures to the right of a specified number of places are dropped after increasing the final remaining figure by 1, if the first digit is 5 or greater . (Webster Third New International Dictionary, 1976, p. 1979). Hence, the Commission previously ruled that since .25 cannot be rounded off into 1, the same should be treated as negligible and need not be considered in the computation of the required number to constitute a quorum. (SEC Opinion dated November 7, 1989 addressed to First Asia Realty Development Corporation) Thus, applying the foregoing accepted numerical computation on the present case, 3.6 is considered 4 and 5.4 as only 5. Accordingly, for purposes of computation, 40% of 9 is 4 and 60% is 5. In this connection, it is worth mentioning that the present state policy on investment is aimed at encouraging foreign investments. The State acknowledges that foreign capital has a role to play in the development of our economy and it is the task of the government to determine this role and provide the much needed climate for their entry. In line with this policy, a need to adopt liberal interpretation or construction of our laws seems to emerge in favor of foreign investments, the Commission recently decided to do away with the strict implementation of the so called "grandfather rule" method of computing foreign equity participation in domestic enterprises and opted for the adoption of the more lenient "control-test" method taking into consideration that a more liberal approach towards foreign participation in domestic enterprises will encourage overseas investors to come to the country. Thus to be consistent with the foregoing policy of the Commission, the application of the above accepted numerical computation is hereby adopted. This computation will not adversely affect the Filipino group considering that five (5) seats of which the Filipinos are entitled, is still the controlling majority. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman