SEC Opinion on the Election of a Foreign Director and President in a Holding Company; and in a Subsidiary Engaged in Power Generation
In an opinion issued on June 28, 2022, the Securities and Exchange Commission (SEC) discussed: (1) Whether or not a foreigner may be elected as a director and prescient of a holding company owned and controlled by Philippine nationals; and (2) Whether or not the company may elect a foreigner as a director of each of its subsidiaries which shall engage in power generation from renewable energy sources and shall own land.
On the first query, the SEC noted that while the minimum qualifications to be a member of the board of directors in Section 46 of the Revised Corporation Code of the Philippines (RCCP) did not impose any citizenship requirements, the provision was subject to the the restrictions found in the 1987 Constitution, Commonwealth Act No. 108 or the “Anti-Dummy Law,” and/or special rules implemented by the regulatory authority of the industry.
Previously, it was held that a holding company was a domestic market enterprise. Micro and small domestic market enterprises with paid-in equity capital of less than two hundred thousand US dollars (US$ 200,000) are reserved for Philippine nationals at 60%, for foreigners at 40% provided that if: (1) they involve advanced technology as determined by the Department of Science and Technology; or (2) they are endorsed as a startup or startup enablers by the lead host agencies pursuant to R.A. No. 11337, otherwise known as the Innovative Startup Act; or (3) a majority of their direct employees are Filipino but in no case shall the number of Filipino employees be less than fifteen (15), then a minimum paid-in capital of one hundred US Dollars (US$ 100,000) shall be sufficient to allow ownership by non-Philippine nationals of more than 40% equity.
The Commission previously held that foreigners can be elected as directors in proportion to their allowable participation or share in the capital of the corporations engaged in activities reserved to Filipinos but are prohibited from being elected as officers of a corporation.
However, if a company’s paid-in-capital will not be less than two hundred thousand US Dollars, then a foreigner may be elected as a director and president of the of the holding company since the nationality restriction on domestic market enterprises does not apply.
On the second query, the SEC stated that the Constitution and the Eleventh Foreign Investment Negative List limit foreign participation in the exploration, development, and utilization of natural resources to a maximum of 40% equity. Furthermore, Section 2-A of the Anti-Dummy Law states that corporations engaged wholly or partially nationalized activity or business undertaking, prohibits the employment of any person, corporation, or association of an alien, who shall intervene in the management, operation, administration or control thereof, whether as officer, employee, or laborer, when the exercise or enjoyment of the property or of the franchise privilege or business engaged in by such person, corporation or association is expressly reserved by the Constitution or the law to the citizens of the Philippines or corporations or associations at least 60% of the capital of which is owned by such citizens. The same law, however, allows foreigners to be elected as directors in proportion to their allowable participation in the corporation’s capital. Thus, foreigners may be elected as directors in the subsidiary companies engaged in a partly-nationalized activity, provided that the number shall not exceed the allowable portion of foreign participation in the corporation’s capital (e.g. 40%). In determining the representation of foreign stockholders in a corporation’s board of directors, the basis would be the actual share of foreign stockholders in the capital of the corporation which should comply with foreign equity limitations prescribed by law.
The full opinion can be found here.