Mr. Ricardo M. Salomon, Jr.

October 6, 1992 Mr. Ricardo M. Salomon, Jr. Bonifacio Law Office 4th Flr. Salomon Building 1427 E. Rodriguez Sr.,Blvd., Quezon City 1120 S i r : This refers to your letter of September 9, 1992 inquiring whether a domestic corporation which was authorized by the Board of Investments (BOI) to have a 75% American and 25% Filipino equity participation is allowed to acquire private lands in the Philippines, and if not, may the foreign investors, in order that said corporation can qualify to own private lands, dispose of their shares leaving only 40% equity participation in said corporation, but the assignees of said shares will execute a Voting Trust Agreement in favor of such foreign assignors so that the legal ownership of the stock transferred will be retained by the assignors although the beneficial ownership has been transferred to the assignees. llcd The legal capacity of a corporation to acquire real estate in the Philippines is regulated by law. Section 7, Article XII of the Philippine Constitution provides: "Save in cases of hereditary succession, no private lands shall be transferred except to individuals, corporations or associations qualified to acquire or hold lands in public domain ." (Emphasis supplied) Section 22 and 23 of Commonwealth Act No. 141, otherwise known as "The Public Land Act", quoted in part hereunder, expressly provide as to who are qualified to acquire lands in the Philippines: "SECTION 22. Any citizen of lawful age of the Philippines and any such citizen not of lawful age who is a head of a family, and any corporation or association of which at least sixty percentum of the capital stock belongs wholly to citizens of the Philippines ,and which is organized and constituted under the laws of the Philippines, authorized under their charter, to do so, may purchase any tract of public agricultural land disposable under this Act ...." (Emphasis supplied) "SECTION 23. No person, corporation ,association, or partnership other than those mentioned in the last preceding section ,may acquire or own agricultural public land or land of any other denomination or classification ,which is at the time or was originally really or presumptively of the public domain, or any permanent improvement thereon, or any real right on such land and improvement, ...." (Emphasis supplied) Accordingly, a domestic corporation whose foreign equity participation exceeds 40% of the outstanding capital stock is not qualified to acquire private lands in the Philippines. Relative to the second query, it is worth mentioning that under Commonwealth Act No. 108, otherwise known as the Anti-Dummy Law, as amended by PD 715, foreign investors' representation in the governing board of a corporation shall be allowed only in proportion to their allowable participation in the equity of said corporation. Normally, under a "voting trust agreement" the trustee shall possess and shall be entitled to exercise all rights and powers of an owner in respect of the stocks held by him, including the right to be elected in the board. In effect therefore, the above Law granting proportionate representation in the Board will be circumvented inasmuch as the "trustees", who are foreigners, would be representing the shares of the Filipino assignees, thereby, maintaining foreign investors' representation in the board which is presently 75%. Thus, while the reduction of foreign equity participation in the corporation to only 40% by assigning the shares of the foreign investors to Filipino assignees would make the corporation qualified to acquire private lands, the "voting trust agreement" would be violative of the above-mentioned Law considering that under the situation, foreign representation in the Board will exceed their allowable representation after the transfer which is only 40%. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman