De Borja Medialdea Bello Guevarra & Gerodias

April 30, 2003 SEC OPINION NO. 16-03 De Borja Medialdea Bello Guevarra & Gerodias 21st Floor Wynsum Corporate Plaza Emerald Avenue, Ortigas Center Pasig City Attention: Atty. Ma. Rosario C.Z. Nava Gentlemen : This refers to your letter dated 21 January 2003, requesting opinion on 1) the extent of foreign ownership of a financing company with paid-in equity capital of more than the equivalent of USD 200,000; 2) exemption of said financing company from Section 2-A of the Anti-Dummy Law with regards to the prohibition on foreigners to hold management positions; and, 3) whether or not a foreign corporation holding forty percent (40%) of the total outstanding capital stock of a financing company having a paid-in equity capital of more than the equivalent of USD 200,000 may elect three (3) out of five (5) directors in the board of such financing company. On the first issue. Section 6 of Republic Act 8556, otherwise known as The Financing Company Act, provides: Form of Organization and Capital Requirements . Financing companies shall be organized in the form of stock corporation at least forty percent (40%) of the voting stock of which is owned by citizens of the Philippines .... It is very clear from the above-quoted provision that the maximum foreign equity participation allowed to a financing company is only sixty percent (60%).Thus, a financing company cannot be owned by non-Philippine nationals up to one hundred percent (100%) notwithstanding its paid-in equity capital of more than USD 200,000. Moreover, although a financing company with paid-in equity capital of more than the equivalent of USD 200,000 is not covered under the limitations contemplated in List B(6) of the 5th Regular Foreign Investment Negative List, the foreign equity of such company however is clearly limited to up to sixty percent (60%) as provided in List A(27) of the said Negative List. On the second issue, Section 2-A of the Anti-Dummy Law specifically bans foreigners from being elected or appointed to management positions where there is a constitutional or statutory provision imposing a specific nationality requirement as a requisite for the exercise or enjoyment of a right, franchise or privilege. Such restriction includes positions as president, vice-president, secretary, treasurer and the like. Section 25 of the Corporation Code also requires that a corporate secretary shall be a citizen and resident of the Philippines. ( SEC Opinion dated 08 December 1995, Mr. K.J. McTavish ) Anent the last issue, although foreigners are prohibited from being elected or appointed in management positions of financing companies, Section 2-A of the Anti-Dummy Law however specifically allows aliens to become members of the board of directors of corporations engaged in partially nationalized activities such as financing companies. However, such membership should be " in proportion to their allowable participation or share in the capital of such entities ".The word "allowable" as used in the said provision refers to the foreign equity limit imposed by law on financing companies which is up to sixty percent (60%). The corporation may opt to lessen its foreign equity participation or share which may vary the number of its foreign directors. Thus, in answer to your query, a financing company therefore which opted to allow only forty percent (40%) foreign equity participation or share, may only elect two (2) out of five (5) directors in their board, and not three (3) out of five (5),notwithstanding its paid-in equity capital of more than USD 200,000. HDCTAc Please be advised accordingly. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel