Hon. Lilia R. Bautista

February 26, 1990 Hon. Lilia R. Bautista Department of Trade and Industry Trade and Industry Building 361 (Buendia) Sen. Gil J. Puyat Ave. Makati, Metro Manila M a d a m : This refers to your letter dated December 11, 1989, requesting confirmation of the SEC opinion dated June 1, 1982 stating that domestic corporations with foreign equity participation in excess of thirty (30%) percent duly approved by the Board of Investments are exempted from the provisions of Section 23 of the Corporation Code requiring Philippine residency of the majority of the members of the board of directors of domestic corporations. Section 23 of the Corporation Code provides in part: ". . . A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines ." (emphasis supplied) The use of the word "must" in the law connotes that the residency requirement is mandatory . As such it cannot be dispensed with. The requirement is mainly for the protection of the stockholders or members of the corporation against inactivity of the board where no quorum can be mustered due to repeated absence of a director or trustee who resides abroad. (Campos and Lopez-Campos, Corporation Code, Comments, Notes and Selected Cases, 1981, p. 297). On the other hand, citizenship requirement is governed by Commonwealth Act No. 108, as amended by PD 715. It has been settled "that the election of aliens as members of the Board of Directors or governing body of corporations or associations engaged in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities ." Although PD 715 speaks of application to partially nationalized activity, it can be deduced from the objective in the enactment of PD 715 that the limitation on alien participation in the board likewise applies to permitted investments under the Omnibus Investments Code. (In re: The Nutcracker Far East Corporation; SEC Opinion dated October 3, 1983). The residency and citizenship requirements for directors therefore are as follows: Residency Requirement At least majority of the members of the board of directors must be residents of the Philippines. Citizenship Requirement Alien membership in the board of directors must be proportionate to their equity participation in the corporation. Considering that the said requirements are mandated by law, the same cannot be dispensed with. Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner