Re : Foreigner As President

March 11, 2004 SEC OPINION NO. 08-04 Re : Foreigner As President Attys. Ariben C. Sebastian and Jemilyn S. Camania Cayetano Sebastian Ata Dado & Cruz Law Offices 12th floor, NDC Building 116 Tordesillas St.,Salcedo Village, Makati City S i r s : This refers to your letter dated 10 September 2003 seeking reconsideration of the Commission's refusal to process the application of trade name "Filcendo" of your client, Eupac, Inc. on the ground that the President of subject corporation is a foreigner. The request for reconsideration is denied on the ground hereunder discussed. It is undeniable that non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises unless foreign ownership therein is prohibited or limited by the Constitution and existing law or the Foreign Investment Negative List under Section 8 1 subject to the further condition that domestic foreign-owned corporation should comply with the paid-up requirement of US$200,000.00. HTSIEa However, domestic market enterprises with paid-in equity capital of less than the equivalent of two hundred thousand U.S. dollars (US$200,000) are reserved to Philippine Nationals." 2 By "Philippine National" is meant a citizen of Philippine or domestic partnership or association wholly owned by citizens of the Philippines or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. 3 Corollary thereto, the Transitory Negative List B limits foreign equity participation in a domestic enterprise with paid-in equity capital of less than US $200,000 to only 40%. Thus, the business activity of a domestic corporation with 40% foreign equity participation whose paid-in equity is less than the equivalent of US $200,000 is considered a nationalized business, and hence, subject to the following provision of Commonwealth Act No. 108, as amended by P.D. 715, otherwise known as the Anti-Dummy Law; Stated differently, a foreigner cannot be elected as president of a domestic corporation owned by 60% Filipino citizens and 40% foreign equity if the paid-up capital is less than US $200,000, considering that the same is classified as a nationalized business reserved to Philippine Nationals by virtue of the Foreign Investments Act of 1991. This ruling is in consonance with the previous ruling of the Department of Justice Re: Opinion No. 37, Series 1976, stating 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 said companies, although they can be elected directors in proportion to their allowable participation or share in the capital of such activities in accordance with Commonwealth Act No. 108, as amended by P.D. 715, otherwise known as the Anti-dummy Law. In the instant case, a foreign national may be elected as President of the corporation only if the minimum capital requirement under the Foreign Investments Act of 1991 is complied with. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Section 7, Republic Act No. 7042, as amended by R.A. 8179 2. Sec. 8, Ibid. 3. Section 3, ibid.