Re: Corporations considered as Philippine Nationals

December 22, 2004 SEC OPINION NO. 49-04 Re: Corporations considered as Philippine Nationals Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza 8741 Paseo De Roxas, Makati City Attention: Atty. Priscilla B. Valer M a d a m : This pertains to your letter dated 28 September 2004 requesting confirmation that both Corporation "A" and "the Foundation" are considered Philippine Nationals under the Foreign Investments Act, as such Corporation "A" is qualified to own land. You mentioned that this request is based on concrete plan of action which your client will implement once the legality of the structure is confirmed by this Commission. As stated, a domestic corporation will sell all of its landholdings in the Philippines to a prospective Corporation "A," which shall be incorporated to develop and manage these real properties. Corporation "A" shall have its capital stock divided into two (2) classes of shares: 1. Forty percent (40%) preferred shares, with the par value of PHP 8,000 per share, all subscribed into by a Non-Philippine National; and 2. Sixty percent (60%) common shares, with the par value of PHP 10 per share, all subscribed into by "the Foundation," which have the following characteristics: a. The Foundation will be organized as a non-stock non-profit corporation operated exclusively for educational purposes; 2004cdtai b. It will be composed of five (5) members who shall act as trustees, the three (3) members of which shall always be Filipino citizens while the two (2) remaining trustees may be officers of the Non-Philippine National; c. The initial funding for the Foundation will be PHP 1 million, most of which will be provided by the Non-Philippine National. Pertinent to your query is a previous SEC Opinion which stated that: "Under the "control concept", the nationality of the corporation depends on the nationality of the controlling stockholders. In determining the nationality of a corporation under the "control test", the following ruling was adopted by the Commission. 1 "Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of said shares shall be recorded as owned by Filipinos. But if less than 60%, or say only 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens." (Department of Justice Opinion, No. 18, S. 1989 dated January 19, 1989, emphasis supplied) 2 This ruling is now expressly embodied under Section 3 of R.A. 7042, otherwise known as the Foreign Investment Act of 1991, quoted hereunder: a. the term "Philippine National" shall mean a citizen of the Philippines or a 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: or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals. . . " (Emphasis supplied) Hence, we confirm your view that the test for compliance with the nationality requirement is based on the total outstanding capital stock irrespective of the amount of the par value of shares. ECTHIA In determining the nationality of a non-stock corporation, the Commission said: ". . . please be informed that the nationality of non-stock corporation is computed on the basis of the nationality of its members and not premised on the membership contribution. (As aptly held in the case of Register of Deeds vs. Ung Sui Temple , 97 Phil. p. 61): 3 The fact that the appellant religious corporation has no capital stock does not suffice to escape the constitutional inhibition, since it is admitted that the members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure that corporations or associations allowed to acquire agricultural land to exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in absence of capital stock, the controlling membership should be composed of Filipino citizens. 4 Applying the aforequoted ruling to the instant query, it may be safely said that since Calvary Chapel Training Center, Inc., is composed of five members with 2 foreign and 3 Filipino nationals, the 60% Filipino 40% foreign membership requirement for acquisition of land in the Philippines by a non-stock corporation is complied with. The rule therefore in this jurisdiction is that the nationality of a non-stock corporation is determinable on the basis of its membership and not on members' contribution." 5 Finally, please be reminded that the foregoing opinion is based solely on facts disclosed in your query and relevant only to the particular issue raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases whether of similar or dissimilar circumstances. For your information and guidance. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Dated 07 December 1993 addressed to Roco Bunag Kapunan Migallos & Jardeleza. 2. Ibid. 3. SEC Opinion dated 28 February 2002 addressed to Atty. Victoria A. Timbancaya. 4. Ibid. 5. Ibid.