Atty. Eduardo F. Hernandez

January 2, 1990 Atty. Eduardo F. Hernandez Hernandez, Velicaria Vibar & Santiago 4th Floor, Adamson Centre 121 Alfaro Street, Salcedo Village Makati, Metro Manila S i r : This refers to your letter dated December 19, 1989, requesting confirmation that the following proposed corporate structure is allowed under the "grandfather rule" or the "control test" guidelines of the SEC. You stated that a 60 40 Philippine corporation (company A) is interested in organizing a company (company B) which will also be a 60 40 Philippine company in order to acquire a parcel of land which will be used to construct a five-star hotel. Company A will be the 60% shareholder in Company B and the remaining 40% will be acquired by a Japanese corporation. 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 partnership, the capital or ownership of which under the Constitution or other special laws are limited to Filipino citizens only. llcd Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner