Atty. Francisco F. Angeles

May 15, 1985 Atty. Francisco F. Angeles 206 Madrigal Building Escolta, Manila Sir : This relates to your letter dated May 2, 1985, requesting the opinion of this Commission on the following queries: 1. Can a Saudi (citizen of Saudi Arabia) legally become a director of a corporation to be organized under the laws of the Philippines? 2. Can he be the Chairman of the Board of directors of the corporation? 3. Up to what extent on capital structure can he be allowed to invest? Can he invest more than 60% to the capital of the proposed corporation? Under the Corporation Code of the Philippines, there is no citizenship requirement demanded of the members of the board of directors. The law provides, in part, thus: "SECTION 23. The board of directors or trustees . . . . A majority of directors or trustees of all corporation organized under this Code must be residents of the Philippines ." (Emphasis supplied) However, Commonwealth Act No. 108, as amended, otherwise known as the "Anti-Dummy Law" penalizes the intervention of aliens in the management, operation, administration or control of nationalized enterprise or activity . As to partially nationalized enterprise or activity, P.D. 715, amending the Anti-Dummy Law provides in part, thus: "SECTION 1. Section 2-A of Commonwealth Act No. 108, as amended, is further amended to read as follows: ....;and provided finally, that the election of aliens as members of the Board of Directors of governing body of corporations or associations engaging in partially nationalized activity shall be allowed in proportion to their allowable participation or share in the capital of such entities." In reply to your first query, it is opined that alien, such as a citizen of Saudi Arabia, is not qualified to be a director in domestic corporations engaged in 100% nationalized activity. As regard a corporation engaged in partially nationalized activity or permitted investments under P.D. No. 1789, otherwise known as the Omnibus Investments Code, alien investors are granted proportionate representation in the board. In other words, they may become directors therein in proportion to their allowable participation or share in the capital of such entities. (SEC Opinion, dated October 3, 1983). In relation with your second query, please be informed that this Commission, in its previous opinions, has ruled that in firms engaged in wholly or partially nationalized activities, aliens are banned from being appointed to management positions as president, vice-president, treasurer, auditor, etc. of the same companies, pursuant to a ruling of the Ministry of Justice although, as earlier stated, they can be elected directors in proportion to their allowable participation or share in the capital of such activities in accordance with the Anti-Dummy Law, as amended by P.D. No. 715. (SEC opinions dated June 14, 1982; July 1, 1983). LibLex "The concept of board chairman and his functions as an executive vary so widely in different companies as to be indefinable. There is no settled practice." (2 Fletcher, Cyc. Corps.,sec. 506 at 541; Ballantine on Corporations, Rev. ed.,sec. 52 at 142)."The typical pattern of executive duties is that the president or the chairman of the board is designated, usually by the by-laws but sometimes in board resolutions, as the general manager or chief executive officer of the corporation. If the chairman of the board is so designated, the president is frequently designated the chief administrative or chief operating officer of may simply clearly be the officer who succeeds to the chairman's executive duties in his absence or disability." (Ballantine & Sterling, California Corporation Laws, Vol. 1, 1982 edition, Sec. 89.03 at chap. 5-42).In such a given situation, an alien cannot qualify as chairman of the board of directors. However, where the president is the chief executive officer, typically, the duties of the Chairman of the board relate to presiding at meetings of the board and of committees of which he is a member and carrying out such other duties as the board shall assign. (Ballantine & Sterling, Supra).The duty of the Chairman of the board as presiding officer is not an executive one. (2 Fletcher, Cyc. Corps.,sec. 506 at 542).Thus, where the function of the chairman of the board as provided for in the by-laws consists merely of presiding at the meetings of the board or of committees of which he is a member, a non-Philippine national may qualify as the chairman of the board. Anent your third query, it is advised that the allowable percentage of capital contribution by aliens in corporations engaged in partially nationalized activities varies in accordance with the provisions of the Constitution and of laws regulating them. As regard the permitted and permissible investments, quoted hereunder are the pertinent provisions of the Omnibus Investments Act: "ARTICLE 67. Permitted investments . (1) Without need of prior authority, anyone not a Philippine national as that term is defined in Article 14 of this Code, and not otherwise disqualified by law, may invest: (a) In any enterprise registered under Book One hereof, to the extent that the total investment of non-Philippine nationals therein would not affect its status as a registered enterprise under the law; (b) In an enterprise not registered under Book One hereof, to the extent that the total investments of non-Philippine nationals herein shall not exceed thirty per cent (30%) of the outstanding capital of that enterprise, unless existing law forbids any non-Philippine ownership in the enterprise or limits ownership by non-Philippine nationals to a percentage smaller than thirty per cent (30%). xxx xxx xxx." ARTICLE 68. Permissible investments . If an investment by a non-Philippine national in an enterprise not registered under Book One hereof is such that the total participation by non-Philippine nationals in the outstanding capital thereof shall exceed thirty (30%) per cent, the enterprise must obtain prior authority from the Board of Investments." Finally, please be informed that under the Labor Code of the Philippines, foreign equity in a corporation engaged in recruitment and placement of workers locally or overseas is limited to 25% of the voting stock. The law provides, thus: ARTICLE 27. Citizenship Requirement . Only Filipino citizens or corporations, partnerships or entities at least seventy-five per cent (75%) of the authorized and voting capital stock of which is owned and controlled by Filipino citizens shall be permitted to participate in the recruitment and placement of workers locally or overseas. (Labor Code of the Philippines, P.D. 1412). Please be advised accordingly. LibLex Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner