The Department of Justice (DOJ) said that foreigners may secure seats in the boards of directors of Philippine corporations with foreign equity and engaged in public utilities and in partially-nationalized activity based only on their “actual” and “allowable” shares.

In a legal opinion dated Sept. 20 and addressed to the Securities and Exchange Commission (SEC), DOJ Secretary Jesus Crispin C. Remulla said that in “public utilities” and corporations engaged in the advertising industry, “foreign investors in the board of directors is limited to their actual participation or share in the capital of such entities.”

“For all other corporations with foreign equity engaged in a partially-nationalized activity, and subject to existing capitalization requirements and ownership of stocks, or those corporations engaged in regular activity, the participation of foreigners is limited by their allowable participation or share in the capital of such entities, as provided for in Section 2-A of the Anti-Dummy Law,” Remulla said.

Under Republic Act (RA) No. 11659, the law that amended Commonwealth Act No. 146, the Public Service Act, Remulla said that “public utility” has been defined as “a public service that operates, manages, or controls for public use any of the following: (1) Distribution of Electricity; (2) Transmission of Electricity; (3) Petroleum and Petroleum Products Pipeline Transmission Systems; (4) Water Pipeline Distribution Systems and Wastewater Pipeline Systems, including sewerage pipeline systems; (5) Seaports; and (6) Public Utility Vehicles.”

“In consonance with the objectives of the Anti-Dummy Law (Commonwealth Act No. 108), for purposes of determining the number of seats allowed for foreigners in a partially nationalized business or activity, or in any other corporation engaged in regular activity, the allowable participation or share in the capital of such corporation shall be taken into account,” Remulla pointed out. 

“This is consistent with the strict limitation set forth by the Constitution for businesses considered as ‘public utilities,'" he said. 

He cited that Section 11, Article XII of the 1987 Constitution states: “The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital...."

He also cited that Section 2-A of the Commonwealth Act No. 108 provides: "The election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially-nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities.”

Remulla issued the legal opinion on request of Securities and Exchange Commission (SEC) General Counsel Romuald C. Padilla who sought clarification over the DOJ Legal Opinion No. 161 issued in 1994 which “seemingly provides for a different position” compared to the DOJ legal opinions issued in 1976 and 1981 concerning the implementation of Section 2-A of Commonwealth Act No. 108.