Mr. Guillermo M. Luz

August 14, 1989 Mr. Guillermo M. Luz Total Construction Systems, Inc. Monja Building, 2110 Pasong Tamo Cor. Urban Ave., Makati, Metro Manila Sir : This refers to your letter, dated July 13, 1989, requesting opinion of this Commission on the query posed therein. You alleged that the late Arch. Alfredo J. Luz is a 100% owner of a domestic corporation engaged in construction and real estate development .Because he died intestate, his ten (10) heirs decided to divide equally among themselves his shares in the corporation. However, you are in quandary as to the legal effects on the ownership of shares of the seven (7) heirs who are former Filipinos but have acquired foreign citizenship by virtue of their long stay in foreign countries. If the shares will be divided equally among the heirs, the 60 Filipino - 40 foreigner ratio of ownership of a partly nationalized domestic corporation shall be impaired. Hence, you are inquiring on the legality of said equal partition of shares. It is well-settled that shares of stock in a corporation are personal property, and as in the case of other personal property, the owner has absolute and inherent right as an incident of ownership, to sell and transfer the same at will, except insofar as the right may be restricted by the charter of the corporation or the general law . (SEC Opinion dated December 26, 1984, October 23, 1968 ,citing 12 Fletcher, Cyc. Corps. Sec. 5452, emphasis supplied). In order to safeguard the interest of persons who are transferees of shares of stock of corporations particularly those who may not be knowledgeable of the citizenship requirement under existing law and in order to secure compliance of the limitation on alien ownership in corporation reserved for Filipino citizens, the Corporation Code requires the articles of incorporation to provide the following provisions: " No transfer of stock or interest which will reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws ,shall be allowed or permitted to be recorded in the proper books of the corporation and this restriction shall be indicated in all stock certificates issued by the corporation (Sec. 15, par. 11). Such restriction serves as notice to all persons who may be dealing with the stock of the corporation and shall deter the issue or transfer of shares in favor of non-Filipino. While under the Corporation Code, there is no general requirement of Philippine citizenship, there are some areas of business and industry where ownership is reserved, wholly or partially, in favor of Filipino citizens by virtue of the Constitution and various special laws. Under LOI 630 and PD 1167, construction is considered a partially nationalized business. The pertinent provisions provide in part thus: LOI 630 ( Domestic Construction ) "Unless specifically authorized by the President of the Philippines in exceptional cases, bidding award and negotiations of primarily civil works contracts shall be limited to Filipino individuals and to corporations, partnerships or associations seventy-five percent (75%) of the capital of which is owned by citizens of the Philippines ." PD 1167 (Developing and Regulating the Overseas Construction Industry, Providing Incentives Therefore, and For Other Purposes). "Filipino Contractor" shall mean a construction contractor, who is a citizen of the Philippines, or a corporation or other juridical entity of which, in the case of a corporation, at least sixty percent (60%) of its capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines and at least sixty percent (60%) of the Board of Directors thereof are citizens of the Philippines, and in the case of any other juridical entity, at least sixty (60%) of its equity is owned and held by citizens of the Philippines." Likewise, "real estate" business is considered a partly nationalized business, foreign equity participation of which, under the Philippine Constitution, is limited to 40% only .Accordingly, any arrangement which attempts to defeat the constitutional purpose should be eschewed . (Department of Justice Opinion No. 84, S. 1988). Considering that the alleged equal partition or transfer of shares would result to 70% foreign and 30% Filipino ownership, you would be violating the required ratio mandated by the aforementioned laws. Consequently, should the corporation intend to continue to engage in construction and real estate business, it should take steps necessary to meet the required equity ratio prescribed under existing laws. Please be guided accordingly. cdlex Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner