Atty. Lorenzo R. Solis

October 3, 1983 Atty. Lorenzo R. Solis Lorenzo Bldg.,781 Vito Cruz Metro Manila Sir : This has reference to your letter dated January 31, 1983, inquiring from this Commission as to whether five (5) individuals, composed of one (1) Filipino holding 70% of the outstanding capital stock and four (4) resident foreigners holding the remaining 30%,may form a corporation (export and manufacturing) and act as incorporators and directors at the same time. cdll You posed this query as an offshoot to the recent incorporation of a similarly situated corporation, THE NUTCRACKER (FAR EAST) CORPORATION, whereby the Corporate and Legal Department of this Commission has advised the corporation that since majority of the holding is Filipino, the Board of Directors should have a Filipino majority. To facilitate the registration of said corporation, a Filipino majority was installed in the Board of Directors. It is your view, however, that there is no legal obstacle to the formation and incorporation of the said corporation even if the incorporators and board of directors are made up of one (1) Filipino and four (4) resident foreigners. Under the Corporation Code of the Philippines, there is no provision as to citizenship requirement in the Board of Directors. The only applicable provision is Section 23 which requires that majority thereof should be residents of the Philippines. The law provides in part, thus: "SECTION 23. The Board of Directors or Trustees . ...A majority of directors or trustee s of all corporations organized under this Code must be residents of the Philippines ." (Emphasis supplied) Commonwealth Act No. 108, as amended, otherwise known as the "Anti-Dummy Law", however, penalizes the intervention of aliens in the management, operation, administration or control of a nationalized enterprise or activity. Excepted from this rule is the case where alien is equity participant of said entities. This exception is specifically sanctioned by the latest amendment to the Anti-Dummy Law (P.D. No. 715) which provides in part, to wit: "SECTION 1. Section 2-A of Commonwealth Act No. 108, as amended, is hereby 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 ." (Emphasis supplied) Without going to the intent of the law, it would seem that the above provision applies only to "partially nationalized" business. However, it can be deduced from its prefatory clause that the same applies also to permitted investments under the Omnibus Investments Code (P.D. 1789) allowing foreigners to invest in certain businesses. The prefatory clause of P.D. 715 states, thus: "Whereas, it is fair and equitable and in line with the constitutional policy expressed in Article XIV, Section 5 of the Constitution that foreign investors be allowed limited representation in the governing board of body of corporations or associations in proportion to their allowable participation in the equity of said entities ." (Emphasis supplied) Article XIV, Section 5 of the Constitution provides in part, to wit: "SECTION 5. ....The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. " (Emphasis supplied) On the basis of the foregoing, we conclude that the intention of the Law is to grant alien investors only proportionate representation in the Board. Thus, in line with the aforecited Constitutional provision, the Commission hereby affirms its present stand on the matter rendering the present case presented not feasible. Attached herewith for further information is a xeroxed copy of the opinion of the Board of Investments (BOI) on the matter stating that to allow the same would be a clear circumvention of the spirit of the law. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman