Opinion No. 14-20 RE: Anti-Dummy Law; Foreign Directors in an Educational Institution

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEI

5 August 2014

SEC-OGC Opinion No. 14-20

Anti-Dummy Law; Foreign Directors in an Educational Institution

ATTY. RESTER JOHN NONATO NONATO NONATO and NONATO

Mandaue City, Cebu 4th Floor Tulips Center, A.S. Fortuna Street

Sir:

Premier Education Center for Language Incorporated ("PECL"), requesting for a foreign stockholders may act as directors in the corporation formed as an English "confirmatory legal opinion" in relation to the Anti-Dummy Law, i.e. "that Language School in proportion to their allowable participation or share in the capital of the said corporation". This refers to your letter dated June 19, 2013 concerning your client,

education and training specifically by operating a course-based language tutorial center of which, per its Articles of Incorporation, is "(t)o offer technical and vocational catering to foreign and Filipino students regardless of educational background." You further stated 60% of PECL's equity is owned by Filipinos, while 40% is owned by Japanese nationals, as distributed in the following manner: You stated that PECL is an English Language School, the primary purpose

Dareen Bontilao Name Naohiko Horikawa Maki Sawane Filipino Japanese Nationality Japanese Subscribed No. of Shares 98 50 2 Amount of Capital Stock Subscribed P 9, 800.00 5,000.00 200.00 Amount Paid on P9, 800.00 Subscription 5,000.00 200.00

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Monaliza A. Laping Lilibeth Junasa Jessica P. Natavio Anina G. Busalla Total Filipino Filipino Filipino Filipino 250 48 50 1 1 P25, 000.00 4,800.00 5,000.00 100.00 100.00 P25, 000.00 5,000.00 4,800.00 100.00 100.00

educational institution, and hence, governed by nationality restrictions under the Constitution, pertinent laws, rules and regulations. You acknowledge that PECL, being an English Language School, is an

permissible for PECL's two (2) Japanese stockholders to sit as members of the Board of Directors of PECL in proportion to their shareholdings. Given the above premises, you now seek an opinion as to whether it is

estate. It was opined that foreigners may participate as board of directors, subject 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.2 In fact, in a recent SEC Opinion3 involving your firm, a similar query was made as to whether it was permissible for foreigners to have participation in the board of directors of a corporation engaging in the ownership and acquisition of real to the aforesaid conditions. However, the last proviso of Section 2-A of the Anti-Dummy Law shall not apply to educational institutions, as these entities are governed by more stringent requirements under the Constitution and pertinent Iaws. the Anti-Dummy Law, the election of foreigners to the board of directors may be This Commission has consistently ruled that pursuant to Section 2-A of

nationality restrictions for educational institutions: Article XIV, Section 4 (2), of the 1987 Constitution specifically provides

body of corporations or associations engaging in partially nationalized activities shall be allowed in 1 Section 2-A, Commonwealth Act No. 108, as amended by PD No. 715. The particular portion of Office; SEC-OGC Opinion No. 12-01, January 31, 2012, addressed to Atty. Sheryl C. Santos- 3 SEC-OGC Opinion No. 14-05, April 25 2014, addressed to Nonato Nonato and Nonato Law Offices. the law reads: "xxx (t)hat the election of aliens as members of the board of directors or governing proportion to their allowable participation or share in the capital of such entities.". 2 See SEC Opinion 09-02, January 12, 2009, addressed to Sebastian, Liganor and Gallinato Law Centenc

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"Section 4.

however, require increased Filipino equity participation in which is owned by such citizens. The Congress may, by religious groups and mission boards, shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of all educational institutions. XXXXX "(2) Educational institutions, other than those established

"The control and administration of educational institutions shall be vested in citizens of the Philippines." xxxxx

(Emphasis supplied)

follows: Presidential Decree No. 176.4 Section 2 of the said presidential decree states as Particularly, this provision of the Constitution is implemented by

employment in, positions involving the exercise of "2. Control and Administration. The control and administration of all educational institutions already established or hereafter to be established in the Philippines Membership in the governing bodies or boards of such educational institutions shall be limited to citizens of the administrative discretion in the management of such educational institutions shall likewise be limited to shall be vested in citizens of the Philippines Philippines. Appointments and designations to, and citizens of the Philippines. xxx"

(Emphasis and underscoring supplied)

become members of the Board of Directors/Trustees of "educational institutions". Pursuant to the aforecited provisions, foreigners are not allowed to

4 The Decree is entitled "IMPLEMENTING SECTION 8 (7), ARTICLE XV,OF THE NEW CONSTITUTION", to implement Article XV Sec. 8(7) of the 1973 Constitution. The said law now implements Article XIV, Section 4 (2), of the 1987 Constitution. (SEC Opinions dated November 7 1991 and November 10, 1992, infra at Notes 5 and 6)

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not citizens of the Philippines, including natural-born citizens of the Philippines who have lost their Philippine citizenship by acquiring naturalized citizenship. Neither can a foreigner be elected as chairman of said governing body.5 The above prohibition/restriction against foreigners applies to all persons who are

in the Board of Directors pursuant to Article XIV, Section 4 (2) of the 1987 Naohiko Horikawa and Mr. Maki Sawane, are disqualified to hold any position Constitution, in relation to Presidential Decree No. 176. Hence, it is our opinion that the Japanese stockholders of PECL, Mr.

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 courts, or upon the Commission in other cases of similar or dissimilar circumstances.7 If upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void. It shall be understood that the foregoing opinion is rendered based solely

CARRE gGeneral Counsel

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7 SEC Memorandum Circular 2003-15. 5 SEC Opinion dated November 7, 1991, addressed to Miss Aimee Ada Coryell. 6 SEC Opinion dated November 10, 1992, addressed to Mr. Eleno L. dela Cruz.