Nominee Shareholding in the Philippines: Anti-Dummy Law Risks Explained

Nominee shareholding arrangements — where a Filipino holds shares for the benefit of a foreigner — are legally dangerous in the Philippines because they can violate the Anti-Dummy Law. The danger is not theoretical: Philippine law itself treats the Filipino nominee as a "dummy" who may be prosecuted alongside the foreign principal. The Revised Corporation Code names the Anti-Dummy Law in its provisions on founders' shares, showing that the law treats dummy arrangements as a compliance problem, not a harmless workaround. If a corporation is formed to hold land or engage in a nationalized activity, a nominee structure can expose both parties to criminal liability and put the corporation's registration at risk.

What the Anti-Dummy Law prohibits

The Anti-Dummy Law is Commonwealth Act No. 108, the statute that penalizes arrangements allowing foreigners to evade ownership restrictions in activities reserved to Filipinos. The Revised Corporation Code refers to it directly. Under Section 7 of the Code, on founders' shares, the exclusive right to vote and be voted for in the election of directors must be for a limited period not exceeding five (5) years from the date of incorporation, and that exclusive right "shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the 'Anti-Dummy Law'".

The core prohibition is simple: a Filipino cannot lend his name to allow a foreigner to own or control a business or asset that the Constitution or statute reserves to Filipino citizens. The nominee is the "dummy." The foreigner behind the arrangement is the principal.

Why nominee shareholding is risky

Nominee shareholding is risky because it is designed to hide the true beneficial owner. When the true owner is a foreigner and the activity is reserved to Filipinos, the arrangement crosses from creative structuring into a criminal offense.

The consequences can reach both sides of the arrangement. Executive Order No. 87, which addressed alien occupation of farm lands in the Mount Data National Park and Central Cordillera Forest Reserve, directed the prosecution of aliens together with their Filipino dummies for violations of the Public Land, Anti-Dummy and Internal Revenue laws. It also directed the National Bureau of Investigation, the Anti-Dummy Board, and the Department of Agriculture and Natural Resources to work jointly and collaborate in the investigation and prosecution of aliens and Filipino dummies. That order concerned a specific reservation, but it illustrates how Philippine enforcement treats dummy arrangements: the Filipino nominee is not a neutral bystander but a co-respondent.

How the Corporation Code screens for dummy arrangements

The Revised Corporation Code builds compliance checks into the incorporation process itself.

Section 13 requires the articles of incorporation to state the names, nationalities, and residence addresses of incorporators, directors, and subscribers. Section 14 prescribes the statutory form of the articles of incorporation, which includes a clause for corporations that will engage in any business or activity reserved for Filipino citizens, providing that no transfer of stock or interest which would reduce Filipino ownership below the required percentage of capital stock shall be allowed or recorded in the corporation's books, and that this restriction shall be indicated in all stock certificates issued by the corporation.

Section 16 lists the grounds for disapproving articles of incorporation or amendments, including that the required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not been complied with. This means the Securities and Exchange Commission can reject a registration where the ownership requirement is not met — and a nominee structure is precisely an attempt to appear to meet it.

How foreign investment can be structured lawfully

Foreign investment in the Philippines is not prohibited. The question is whether the activity is open to foreign equity and, if so, to what extent. Where an activity is fully or partially reserved to Filipinos, the lawful path is to comply with the ownership limit, not to conceal the foreign interest behind a nominee.

For foreign investors, the Bangko Sentral ng Pilipinas maintains a registration framework for inward investments. Under BSP Circular No. 1192, which amended the Manual of Regulations on Foreign Exchange Transactions, a Bangko Sentral Registration Document (BSRD) is a document evidencing registration of foreign investments and loans, and registration allows the transacting party to access the foreign exchange resources of, or purchase foreign exchange from, authorized agent banks against Philippine pesos for servicing or settlement of these transactions. Registration, however, does not cure an ownership violation — it is a foreign exchange mechanism, not a license to exceed constitutional or statutory ownership limits.

Frequently asked questions

Is having a Filipino nominee shareholder illegal in the Philippines? It can be. If the nominee holds shares for a foreigner in a business or asset reserved to Filipinos, the arrangement may violate the Anti-Dummy Law, and both the nominee and the foreign principal may be prosecuted.

What is the penalty for using a dummy in the Philippines? The Anti-Dummy Law provides for criminal penalties. The Revised Corporation Code also allows the Commission to disapprove or take action against non-compliant registrations. The exact penalty depends on the offense and the facts, so a lawyer should be consulted.

Can a foreigner own shares in a Philippine corporation? Yes, where the activity is open to foreign equity. The permissible percentage depends on the specific activity and the applicable law. Where the activity is reserved to Filipinos, foreign ownership is limited or barred, and a nominee arrangement does not change that.

Practical takeaways

• Nominee shareholding is not a workaround; it is the arrangement the Anti-Dummy Law is designed to catch.
• The Filipino nominee can be prosecuted as a dummy alongside the foreign principal.
• The Revised Corporation Code requires nationality disclosures and allows the SEC to reject registrations that do not meet Filipino ownership requirements.
• BSP registration of foreign investments under Circular No. 1192 addresses foreign exchange access, not ownership limits.
• Before structuring any foreign investment, confirm whether the activity is reserved to Filipinos and what ownership percentage applies.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

Amendments to foreign exchange regulations covering foreign investmentsOpen in Law LibraryDownload PDF

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

• EXECUTIVE ORDER NO. 87 - PRESCRIBING RULES AND REGULATIONS GOVERNING THE OCCUPANCY AND USE OF FARM LOTS AND THE ACQUISITION OF TITLES, OUTSIDE THE PURVIEW OF AND SUBSEQUENT TO THE PROMULGATION OF EXECUTIVE ORDER NO. 180, SERIES OF 1956, WITHIN THE MOUNT DATA NATIONAL PARK RESERVATION AND CENTRAL CORDILLERA FOREST RESERVE, BOTH IN THE MOUNTAIN PROVINCES, DIRECTING THE EVICTION OF THE ALIEN AND NON-NATIVE FARMERS WITHIN THESE TWO RESERVATIONS AND PROSECUTION OF FILIPINO DUMMIES TOGETHER WITH THEIR ALIEN EXPLOITERS FOR VIOLATION OF THE PUBLIC LAND, ANTI-DUMMY AND INTERNAL REVENUE LAWS

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.