SEC Opinion No. 10-20
SEC Opinion No. 10-20
SEC Opinion No. 10-20
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27 May 2010
Gentlemen:
This refers to your letter dated 11 February 2010 requesting opinion on the
following:
For the purpose of the query, APHC and RBFCare assumed as corporations
organized and existing under the laws of the Philippines. APHC is wholly owned by
foreign investors. RBFC,on the other hand, is a Philippine corporation at least sixty
percent (60%) of its total outstanding and voting capital stock is owned by Filipino
citizens.
voting capital stock of BFDC.The Class B redeemable shares shall earn cumulative
cash dividends of thirty percent (30%) per annum in accordance with the proposed
dividend distribution mechanism.
Beginning on the third year of operations under the Structure and annually
thereafter, the total amount to be paid as dividends to RBFCand the compensation
of RBFC's directors shall not be less than ten percent (10%) of the amount of
RBFC'ssubscription in BFDC shares, subject always to the availability of URE and
provided that compensation to BFDC directors as such shall not exceed the
maximum permitted under Section 30 of the Corporation Code.
I Batas Pambansa BIg. 68 (1980).
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Finally, the classification of shares, the rights of each class of shares and the
preference granted to the Class B redeemable preferred shares will be incorporated
in the BFDCarticles of incorporation.
Section 7, Article XII of the 1987 Constitution sets out the limit of a
corporation to acquire land in the Philippines, to wit:
From the foregoing, it may be deduced that only corporations that are
qualified under the law shall be allowed to acquire land in the Philippines. The
determination of whether a corporation may acquire real estate is laid down in
Sections 22 and 23 of Commonwealth Act No. 1412, which provide:
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must be wholly owned by Filipino citizens.
APHC RBFC
(Foreign) (Filipino)
4~ ~%
• 60% Filipino owned
• 40% Foreign owned
[ BFDC
]
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[ ABPC
] [ AEPC
] [ RPISI
]
Generally, the nationality of a corporation is determined by applying the
control tesf which requires:
Considering that the material facts in the query are generally hypothetical,
3 Enunciated in DOJ Opinion No. 18 series of 1989, dated 19 January 1989.
4c. Villanueva, PHILIPPINE CORPORATE LA W, 54 (2001 Edition).
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the control test shall be applied. From the foregoing illustration, BFDC shall be
considered as a Philippine national since the sixty percent (60%) required Filipino
ownership is complied with. Applying the control test, all the shares of RBFC shall be
considered and recorded as owned by Filipinos in the determination of the
nationality of BFDC. Thus, the Filipino ownership in BFDC shall be sixty percent
(60%) derived from RBFC's investment and forty percent (40%) foreign ownership
derived from APHC shares. Consequently, BFDC shall be allowed to acquire land in
the Philippines.
5 Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or
series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights
except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any
or all of the shares or series of shares may have a par value or have no par value as may be provided for in the
articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of
the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be
stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That
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of stock of stock corporations may be divided into classes or series of shares, or
both, any of which classes or series of shares may have rights, privileges, or
restrictions as may be stated in the articles of incorporation.6
preferred shares of stock may be issued only with a stated par value. The board of directors, where authorized in
the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the
Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value of five CPS.OO)pesos per share:
Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be
treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share
shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders
of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment ofby-Iaws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;
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With regard to the appointment of directors of BFDC, RBFCand APHC may
nominate, not appoint, three (3) directors and two (2) directors respectively to the
Board of Directors of BFDC. In the letter-query, it is indicated that APHC's two (2)
appointees mayor may not be Filipino citizens. Pursuant to the Anti-Dummy Law,8
the election of an alien to the board of directors may be allowed as long as the
corporation is not engaged in a wholly nationalized activity and only in proportion to
their share in the capital of such corporation.
Anent the issue on the director's fees, the directors of BFDCmay be entitled
to compensation in accordance with Section 30 of the Corporation Code, which
provides:
From the foregoing provision of law, the directors shall not receive any
compensation with respect to their duties as directors except for reasonable per
diems. However, they may be entitled to compensation if there is a provision in the
by-laws fixing such compensation. Also, the directors may be granted compensation,
aside from per diems, by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or special stockholders'
meeting. The compensation of directors is further subject to the condition that the
total yearly compensation of directors shall not exceed ten percent (10%) of the net
income before income tax of the corporation during the preceding year. Thus, the
compensation of the directors of BFDC shall be valid as long as the requirements
under Section 30 are duly complied with.
The foregoing opinion rendered is based solely on the facts disclosed in the
query and relevant solely to the particular issues raised therein and shall not be
used in the nature of a standing rule binding upon the Commission. If upon
investigation, it will be disclosed that the facts relied upon are different, this opinion
shall be rendered null and void.
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Very truly yours,
VERNETTE G. UMALI-PACO
General Counsel