Opinion No. 16-02 Re: Anti-Dummy Law

1 3 Securities and Exchange Commission SEC BuildingEDSA,GreenhillsMandaluyong City Republic of the Philippines Office of the General Counsel Department of Finance

12 February 2016 Anti-Dummy Law. SEC Opinion No. 16 - 02

3RD FLOOR AMO Building PAV RAFANAN & ASSOCIATES #92 New York Avenue cor. Purdue Street Cubao, Quezon City. Atty.Peter Anthony V.Rafanan

Dear Attorney Rafanan:

whether Mr. James Wright, a British national, could assume the position of president/chairman of the board in LiveIn Quarters Steel Corporation (LQSC') and increase his shareholdings therein from 25% to 40%, without violating the Anti- Dummy Law. This pertains to your letter dated 06 March 2015 requesting opinion on

board and increase his stockholdings to forty percent (40%), the threshold for foreign (PRA') after Mr. Wright took his oath, he was informed by the PRA's general manager, Mr. Veredigno P. Atienza, that being a holder of Special Resident Retiree Visa (SRRV'), Mr. Wright could assume the position of president/chairman of the nationals under the Constitution. You disclosed that during a briefing at the Philippine Retirement Authority

You likewise informed us that LQSC has the following purposes:

" PRIMARY

To develop real estate projects in conjunction with modern homes, offices, factories, warehouses, commercial and residential buildings. construction methods and systems using galvanized steel materials for

SECONDARY

2.)To acquire, lease, purchase and go into joint venture, borrow, lend 3.)To market, promote, manage real estate, retirement projects, hotel 1.)To fabricate, manufacture, construct the lystesteel sections, import and develop subdivision and condominium, properties and create events in relation to its businesses. subdivisions, and specialized real estate properties." and export the raw material and finished products. condominium, commercial, industrial, agricultural,resort,

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Act No. 108, or the Anti-Dummy Law, as well as the Foreign Investments Act of 1991 (FIA'), which limit the participation of foreigners in a domestic corporation. 25% to 40% and be the corporation's president/chairman. Finally, you disclosed that you are wary of the provisions of Commonwealth Thus, you ask us whether Mr. Wright could increase his shares in LQSC from

it allows such alien to be elected as director in proportion to his allowable undertaking. This provision prohibits the employment by any person, corporation, or association of an alien, who shall intervene in the management, operation administration or control thereof, whether as officer, employee, laborer, when the engaged in by such person, corporation or association is expressly reserved by the associations at least 60% of the capital of which is owned by such citizens; however applies to corporations engaged in wholly or partly nationalized activity or business exercise or enjoyment of the property or of the franchise,privilege, or business Constitution or the law to the citizens of the Philippines or corporations or participation or share in the corporation's capital. Of pertinence to your query is Section 2-A of the Anti-Dummy Law, which

partly nationalized activity or business undertaking.2 Hence, to answer your query, we must first determine if LQSC is engaged in a

conjunction with modern construction methods and systems" and the secondary in this activity is required by Art. XII, Section 7, of the Constitution and List A, No 18 of the 10th Foreign Investment Negative List (FINL-103 to be owned by Philippine citizens. purpose to acquire, lease,purchase and go into joint venture, borrow,lend and develop subdivision and condominium properties xxx in relation to its businesses" Such purposes include or allow ownership of land. In short, we are of the opinion that one of the activities to be undertaken by LQSC is ownership of land, which is a partly nationalized undertaking, considering that 60% of the capital of a corporation engaged To reiterate, LQSC has the primary purpose "to develop real estate projects in

cannot act as a president/chairman of the board, nor can he increase his shareholdings to 40% if there are other foreign stockholders in the corporation. On the other hand, if there is no other foreign stockholders in the corporation, Mr. Wright can increase his shareholdings from 25% to 40%, but cannot act as president/chairman of the board. Consequently, the Anti-Dummy Law applies to LQSC. Therefore, Mr. Wright

associations at least 60% of the capital of which is owned by Filipino citizens, that is to say, the minimum equity participation required to be owned by Filipinos is 60%. (Department of Justice Primer Dummy Law, if its enjoyment or exercise is limited by the Constitution or any law to corporations or An undertaking or activity is partly nationalized, within the meaning of Section 2-A of the Anti- on Anti-Dummy Law) 3 Executive Order No. 184. Signed 29 May 2015. SEC Opinion No. 12, Series of 2002(dated 21 November 2002 addressed to Mr. Jose L. Gonzales.

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ownership, it may still be covered by Section 8 of the FIA and List B of the FINL-10 which provide: Furthermore, assuming that LQsC is not covered by the rules on land

in equity capital less than the equivalent of two hundred thousand US dollars (US$200,000.00) are reserve to Philippine nationals: Provided, that if (they involve advanced technology as determine by the Department of Science and Technology, or (2) they employ at least fifty 50) direct employees, then a minimum paid-in capital of one hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals." "Section 8. xxx Small and medium-sized domestic market enterprises with paid- XXX XXX

"List B ---

Foreign ownership is limited up to 40% foreign equity for protection of small and medium scale enterprises:

Domestic market enterprises with paid-in equity capital of less than equivalent of US$200,000.00.

Domestic market enterprises which involve advance technology or employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000.00.

in construction of all types of houses and buildings as well as roads and bridges will be considered as engaged in an undertaking classified as partially nationalized activity because it is a domestic market enterprise with paid-up capital of only one million Anti-Dummy Law was applied to the said corporation. pesos (Php1,000,000.00) which is roughly equivalent to US$18,182.00; as such, the In this connection, the Commission opined that a domestic company engaged

less than US$200,000.00, or a domestic market enterprise which involve advance technology or employ at least fifty (50 direct employees with paid-in equity capital of less than the equivalent of US$100,000.00,it can be considered as engaged in a nationalized activity. Hence, it will be covered by the Anti-Dummy Law which would restrict the officer positions of LQSC only to Filipinos, as well as the foreign ownership thereof to 40%. Thus, if LQSC is a domestic market enterprise that only has a paid-in equity of

solely on the facts and circumstances disclosed and relevant solely to the particular issue raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar It shall be understood, however, that the foregoing opinion is rendered based

Bello Guevarra & Gerodias. 4 SEC Opinion No. 50, Series of 2003 (dated 23 October 2003) addressed to Mr. Yatsutaka Hinda. See Also Opinion SEC Opinion 16, Series of 2003 (dated 30 April 2003) addressed to De Borja Medialdea

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circumstances. If, upon further inquiry and investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void.

Please be guided accordingly.

Very truly yours,

NX HON. MANUEHUSERTO B.GAITE OGC Supervising Commissioner

5 Paragraph 7, SEC Memorandum Circular No.15, Series of 2003