Mr. Amado M. Santiago, Jr.

July 11, 1989 Mr. Amado M. Santiago, Jr. Surigao Consolidated Mining Co., Inc. 4th Floor, Ortigas Bldg. Ortigas Avenue, Pasig, Metro Manila Sir : This refers to your letter dated May 12, 1989, inquiring on whether the proposed swapping of Class "A" shares of Surigao Consolidated Mining Co. (20% of the outstanding (A & B) capital stock of which is owned by non-Filipino citizens) with the shares of a supermarket company engaged in retail business (wholly owned by Filipino citizens) to 40% of the latter's outstanding capital stock is allowable and whether the latter company can continue its retail business. Anent thereto, please be advised that Republic Act 1180, otherwise known as the Retail Trade Nationalization Law was passed to nationalize the retail trade business. Section 1 thereof provides, thus: "SECTION 1. No person who is not a citizen of the Philippines, and no association, partnership, or corporation the capital of which is not wholly owned by citizens of the Philippines, shall engaged directly or indirectly in the retail business: . . ." It is clear for the aforecited provision that corporations whose capital are not wholly owned by citizens of the Philippines are barred from engaging "directly or indirectly" in retail business. The use of the words "directly or indirectly" is of paramount importance for it underscores the policy of the State to exclude corporations not wholly owned by Filipinos from engaging in retail business. The use of the said words clearly indicates that investment made or to be made by a corporation with foreign equity and its consequent ownership of shares in a 100% owned Filipino corporation engaged in retail business would be an indirect means of engaging in retail business because through such shares the stockholders participate in the profits and losses of the latter corporation. Thus, the "Commission previously ruled that "only corporations wholly owned by Filipino citizens can purchase or acquire or invest shares of a corporation engaged in retail trade. The law rates 100% Filipino ownership of corporations before it can engage directly or indirectly in retail business and so any percentage less would disqualify it." ( SEC Opinion dated July 21, 1977, addressed to Atty. Rodegelio M. Jalandoni ). cdll In the light of the foregoing, your query is answered in the negative. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman