SEC-OGC Opinion No. 22-09: Election of a Foreign Director and President in a Holding Company and of a Foreign Director in a Subsidiary Engaged in Power Generation Activities

In the SEC-OGC Opinion No. 22-09 issued on 28 June 2022, the opinion of the Securities and Exchange Commission (“SEC”) was sought on whether a foreigner may be elected as director and president of a holding company. 

In addressing the issue, the SEC discussed that pursuant to the Revised Corporation Code of the Philippines (“RCCP”), the directors immediately after their election must formally organize and elect, among others, a president who shall be a director. The SEC also cited its previous opinion where it opined that a holding company is a domestic market enterprise. Micro and small domestic market enterprises with paid-in equity capital of less than the equivalent of two hundred thousand US dollars (USD 200,000.00) are reserved to Philippine nationals at sixty percent (60%), the maximum allowable foreign equity being limited to forty percent (40%), provided, that if:

1. they involve advanced technology as determined by the Department of Science and Technology
2. they are endorsed as startup or startup enablers led by the host agencies pursuant to Republic Act No. 11337, otherwise known as the Innovative Startup Act; or
3. a majority of their direct employees are Filipinos, but in no case shall the number of Filipino employees be less than fifteen (15),

then a minimum paid-in capital of one hundred thousand US dollars (USD 100,000.00) shall be sufficient to allow ownership by non-Philippine nationals of more than forty percent (40%) equity.

Here, it has been established that the paid-in capital of the holding company that will be engaged in the business of generating power from renewable sources, will not be less than two hundred thousand US dollars (USD 200,000.00). Thus, a foreigner may be elected as director and president of such holding company since the nationality restriction on domestic market enterprises does not apply.

Another issue raised to the SEC is whether a foreigner may be elected as a director in the holding company’s subsidiaries engaged in a partly nationalized activity.

The SEC discussed that pursuant to Section 2, Article XII of the Constitution, the Eleventh Foreign Investment Negative List limits foreign participation in the exploration, development, and utilization of natural resources to a maximum of forty percent (40%) equity. Further, while Section 2-A of the Anti-Dummy Law prohibits the employment of an alien in a wholly or partially nationalized activity or business undertaking, who shall intervene in the management, operation, administration, or control thereof, whether as officer, employee or laborer, it however allows foreigners to be elected as directors in proportion to their allowable participation in the corporation’s capital.

Consequently, the SEC opined that a foreigner may be elected as director in the subsidiary companies engaged in a partly nationalized activity, provided that the number of foreign directors shall not exceed the allowable proportion a foreign participation in the corporation’s capital (e.g. forty percent 40%). The SEC noted however, that in determining the representation of foreign stockholders in the board of directors of corporations engaged in partly nationalized activities, the basis would be the actual share of foreign stockholders in the capital of the corporation, which share should not exceed the foreign equity limitation prescribed for that particular corporation or association.