Alienation of Aliens

SEC-OGC Opinion No. 16-29 cites Section 2 of the Anti-Dummy Law in clarifying that management positions – such as that of a President or Vice President – may not be held by aliens. Likewise, SEC-OGC Opinion No. 16-02 cites the same provision of law in saying that an alien national cannot act as President/Chairman of the Board.
 
But, is an alien likewise prohibited from acting as the Chairman of the Board only and not holding another position concurrently? Based on SEC-OGC Opinion No. 07-07, it appears that chairmanship can be so vested. Thus: “for as long as the association is not engaged in nationalized activity, a non-Philippine national may serve as a member of its board of trustees or be the chairman of the board… On the other hand, if the association engages in partly nationalized activities, foreign nationals may sit in the board in proportion to their allowable membership therein. In the same vein, an alien national may assume the post of the Chairman of the board whose act shall be limited to that of a presiding officer during board meetings.” 

Renewable Energy Companies Limited to 40% Foreign Equity

In SEC-OGC No. 16-29, the Office of the General Counsel (OGC) of the SEC considered renewable energy to be within the ambit of businesses involved in the “exploration, development, and utilization of natural resources”, among others, and thus subject to a 40% foreign equity limitation.  This limitation is in accordance with Article XII, Section 2 of the Constitution, which declares that “all forces of potential energy… and other natural resources are owned by the State” and allows the State to “enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.”

Guidelines on Nationalized Industries

The Supreme Court recently upheld the constitutionality of SEC Memorandum Circular No. 8, Series of 2013. The salient points of said Memorandum Circular are as follows:


a. The covered corporations are those involved in areas of activities or enterprises specifically reserved, wholly or partly, to Philippine Nationals by the Constitution, the Foreign Investments Act, and other existing laws.


b. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement.


c. The required percentage of Filipino ownership must be met in both (a) the total number of outstanding shares of stock entitled to vote in the election of directors, and (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.


d. Corporate Secretaries of covered corporations are directed to monitor and observe compliance thereto. The Corporate Secretary may not delegate this responsibility without an express authority from the Board of Directors or Trustees.


e. Failure to comply will be punished with the administrative sanctions provided in Section 14 of the Foreign Investments Act as amended, summarized below:


Juridical entity

Fine of ½ of 1% of the paid-in capital, but not more than Php5,000,000.00

President / officials responsible

Fine not exceeding Php200,000.00

Any person, firm, or juridical entity

Forfeiture of all benefits granted under the Foreign Investments Act as amended

Anti-Dummy Law Update

An alien cannot be elected as president/chairman or officer of a corporation that is engaged in a nationalised activity pursuant to the Anti-Dummy Law. This rule has been reiterated by the SEC in Opinion No. 16-02. The Anti-Dummy Law, however, allows an alien to be elected as director in proportion to his allowable participation or share in the corporation’s capital. 

SEC Reportorial Requirements

Petitions to set aside revocation orders pursuant to failure to comply with reportorial requirements may now be filed anytime subject to compliance with MC No. 5-2016. Thus, if you have a company that had its registration revoked because of failure to submit reportorial requirements  (e.g., general information sheet, audited financial statements, etc.), and the deadline to file the petition to revoke the order has lapsed, you may still proceed to do so. 

Online Gambling Update

The newly elected President of the Philippines has announced a crackdown on online gambling facilities. It appears from the statements made that the new President is against gambling in general. This policy may affect the Philippine gaming industry. 

Retail Trade Update

Sales to the general public, through a single outlet owned by a manufacturer of products manufactured, processed or assembled in the Philippines, irrespective of capitalisation is not considered as retail, pursuant to Section 3(d) of the Retail Trade law and Section 2(d) of its Implementing Rules and Regulations. Please refer to SEC Opinion No. 16-03. 

Implementing Regulations of the Competition Act

The Philippine Competition Commission issued recently issued the rules and regulations to implement Republic Act No. 10667, or the Philippine Competition Act. The regulations came into force on June 18, 2016 after being published on JUne 3, 2018. A copy of the regulations may be downloaded here.

Stockholders’ Meeting Cannot be Conducted Via Teleconference

The SEC, in its Opinion No. 16-01, stated that under the present Corporation Code, a stockholder’s voting and appearance cannot be conducted via teleconferencing or videoconferencing. 
 
Section 51 of the Corporation Code provides that “stockholder’s or member’s meetings, whether regular or special, shall be held in the city or municipality where the principal office of the corporation is located, and if practicable in the principal office of the corporation.” Since this provision presupposes that the attendees to a stockholders’ or members’ meeting are in the same place during the meeting, it is in contrast to teleconferencing, where the participants are in different places although their communication with each other is facilitated through an electronic medium, making their presence in the meeting merely “virtual” or electronic.
 
On the other hand, the conduct of a meeting of the board or directors may be held anywhere in or outside the Philippines, unless the by-laws provide otherwise, per Section 53 of the Corporation Code. In this regard, SEC Memorandum Circular No. 15 Series of 2001 provides the guidelines for the conduct of board meetings through teleconferencing.  In addition, Section 47 of the Corporation Code permits the place of the directors’ meeting to be stipulated in the corporations’ by laws, but not in the case of stockholders’ meetings.
 
Clearly, the aforementioned provisions of law disallows stockholder’s voting and appearance conducted via teleconferencing. However, there are pending bills in Congress that proposed amendments to the Corporation code. This includes permitting the conduct of stockholders meetings through electronic means.

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