Atty. Maurice C. Nubla

December 14, 1989 Atty. Maurice C. Nubla Nubla, Pedrosa & Associates 6th Floor, Fil-Am Resources bldg. 231 Juan Luna Street Binondo, Manila Sir : This refers to your letter dated December 8, 1989, requesting guidance and interpretation of the "grandfather rule" as applied to the following corporate structure of ownership. There are two (2) domestic corporations, "A" Corp. and "B" Corp., both with 60% Filipino and 40% Foreign participation. "B" Corp. proposes to acquire the equivalent of 40% of the shares of "A" Corp. and 40% to come from the shares of Filipino stockholders. The resulting shareholding in "A" Corp. will then be as follows: 40% Foreign (Individuals) 20% Original Filipino (Individuals) 40% "B" Corp. (Filipino Corp. with 40% Foreign and 60% Filipino equity) Please be advised that the Commission en Banc , in its meeting of November 2, 1989, resolved to adopt the method of determining corporate nationality on the basis of the Opinion of the Department of Justice No. 18, s. 1989, dated January 19, 1989. The rule in the determination of citizenship of corporations with alien equity states as follows: "Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality , but if the percentage of Filipino ownership in the corporation or partnership is less than 60% only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital respectively, of which belong to Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But if less than 60% or, say, only 50% of the capital stock or capital of the corporation or partnerships, respectively belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens." (emphasis supplied) Thus, for as long as the percentage of Filipino ownership of the capital stock of the corporation is at least 60% thereof, the corporation shall be considered as a Filipino corporation. However, while a corporation with 60% Filipino and 40% Foreign equity ownership is considered a Philippine national for purposes of investment, it is not qualified to invest in or enter into a joint venture agreement with corporations or partnerships, the capital or ownership of which under the constitution or other special laws are limited to Filipino citizens only. Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner