Opinion No. 16-28 Re: Applicability of Anti-Dummy Law to Business Process Outsourcing.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

23 November 2016

RE: Applicability of Anti-Dummy SEC-OGC Opinion No. 16-28 Law to Business Process Outsourcing

MR. NICANOR EVANGELISTA Assistant Corporate Secretary EcoOffices, Inc. Dasmarinas, Cavite Block 6 Lot 3 Brgy. Sta. Fe.

Dear Mr. Evangelista

This refers to your letter dated 4 December 2014 requesting for an opinion regarding the applicability of Section 2-A of the Anti Dummy Law to EcoOffices, Inc. (EcoOffices) and the legality of appointing a foreign national as Director and President, and Sales and Marketing Director of EcoOffices.

You stated that EcoOffices is a domestic corporation registered in the Commission with SEC Registration No. CS200701304, authorized to engage in business process outsourcing, which provides internet based bookkeeping and other related services to foreign companies and to earn intermediation fee for its

corporation's activities are not covered by the 9th Foreign Investment Negative List (FINL) [now 10th Foreign Investment Negative List]?. activities. You opine that EcoOffices is an export enterprise and that the

You further averred that our Compliance and Monitoring Division (CMD) verbally informed your staff of the need to amend EcoOffices' General Information Sheet on the ground that the Anti Dummy Law disallows the appointment of a foreign national as President of the corporation, which is 60%

than 40% in order to be allowed to elect a foreign national as president of Filipino owned. Moreover, you were advised to increase foreign equity to more

EcoOffices.

Commonwealth Act No. 108 Executive Order No.184

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issues: In view of the foregoing premises, you seek an opinion on the following

1. Whether or not the restriction in Section 2-A of the Anti-Dummy

2 Law applies to EcoOffices. Whether or not a foreign national holding 20% or 40% shares in

a domestic corporation considered as an export enterprise not engaged in a nationalized or partially nationalized activity can be elected as one of its Directors and as its President. 3 Whether or not a foreign national can be appointed as Sales and

Marketing Manager or Director of a domestic corporation considered as an export enterprise not engaged in a nationalized or partially nationalized activity.

Dummy Law prohibits aliens from being appointed to management positions as nationalized activities. The pertinent provision of the said law provides: president, vice-president, etc. of corporations engaged in wholly or partially Relative to your first query, it is well-settled that Section 2-A the Anti

"Section 2-A. Unlawful use, Exploitation or enjoyment right, franchise, privilege, property or business, the exercise or enjoyment transfers or conveys said right, franchise, privilege, property or business to a corporation, or association which, having in its name or under its control, a the Philippines or of any other specific country, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, permits or allows the use, exploitation or enjoyment thereof by a person, corporation or association not possessing the requisites prescribed by a person, corporation or association not otherwise qualified under the allows any person, not possessing the qualifications required by the of which is expressly reserved by the Constitution or the laws to citizens of the Constitution or the laws of the Philippines; or leases, or in any other way, Constitution, or existing laws to acquire, use, exploit or enjoy a right, franchise, privilege, property or business, the exercise and enjoyment of which are expressly reserved by the Constitution or existing laws to citizens Constitution, or the provisions of the existing laws;or in any manner permits oi Any person.

enumerated shall be punished by imprisonment for not less than five nor more of the Philippines or of any other specific country, to intervene in the management, operation, administration or control thereof, whether as an officer, employee or laborer therein with or without remuneration except technical personnel whose employment may be specifically authorized by the Secretary of Justice, and any person who knowingly aids, assists or abets in the planning consummation or perpetration of any of the acts herein above than fifteen years and by a fine of not less than the value of the right, franchise

managers or persons in charge of corporations, associations or partnerships case less than five thousand pesos: Provided, however, That the president. violating the provisions of this section shall be criminally liable in lieu thereof: or privilege enjoyed or acquired in violation of the provisions hereof but in no

3SEC Opinion dated 27 July 1990 addressed to Philippine Association of Service Exporters, Inc.citing SEC Opinions dated 14 June 1982, 1 July i983, 15 May 1985, 26 April 1989.

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to the penalty imposed herein, forfeit such right, franchise, privilege, and the Provided, further, That any person, corporation or association shall, in addition property or business enjoyed or acquired in violation of the provisions of this Act: And provided, finally, That the election of aliens as members of the board

partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities. of directors or governing body of corporations or associations engaging in

business process outsourcing that provides internet based bookkeeping to foreign companies, is neither a wholly nationalized nor partially nationalized activity. As In the case at hand, a review of the 10th FINL shows that engaging in

such, Section 2-A of the Anti-Dummy Law is inapplicable to EcoOffices.

As to your second query, considering that the abovementioned provision of Anti-Dummy Law does not apply to EcoOffices, the appointment of a foreign national as director and his election as President, are allowed. However

Thus, the foreign national must own at least one (1) share of the capital stock of compliance with Sections 234 and 255 of the Corporation Code is indispensable. the corporation to be a director and to be qualified to hold the position of President.

national to assume managerial position in a corporation which does not engage in With respect to your third query, there is no prohibition for a foreign

nationalized activities. To reiterate, EcoOffices is not engaged in such activities. Therefore, subject to existing laws, rules, and regulations, a foreign national may

engaged in nationalized or partly nationalized activity". assume the position of a Sales and Marketing Director of a corporation not

It shall be understood, however, that the foregoing opinion is rendered based solely 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. If upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void.

Please be guided accordingly.

CAMI CORREA

General : uhsel

director, which share shall stand in his name on the books of the corporation. xxx president, who shall be a director xxx SEC Opinion No. 09-03 dated 21 January 2009 "Section 23. xxx Every director must own at least one (1) share of the capital stock of the corporation of which he is a Section 25. Immediately after their election, the directors of a corporation must formally organize by the election of a

SEC Memorandum Circular 2003-15,No.7