Republic of the Philippines Department of Finance Securities and Exchange Commission SEC Building, EDSA, Greenhills, Mandaluyong City OFFICE OF THE GENERAL COUNSEL 01 June 2016 SEC-OGC Opinion No. 16-15 RE: Nationality of — Non-Stock Corporation; Acquisition of Land by a Non-Stock Corporation ATTY. GENESES R. ABOT 389 Quezon Ave. corner West 6" St. West Triangle, Quezon City Dear Atty. Abot: This refers to your letter dated 24 August 2015 requesting opinion regarding the nationality of your client Foundation for purposes of acquiring real property, particularly land, in the Philippines. You stated that your client, a non-stock, non-profit, foreign corporation (hereinafter referred to as the “Foundation”), established here in the Philippines since 1991, is organized solely to conduct charitable ac s. You also disclosed that about ninety (90%) percent of the total initial capital, or Thirty Seven ‘Thousand Pesos (Php 37,000.00), is contributed by foreign nationals. Out of five (5) incorporators, only two (2) are Filipinos, contributing less than (10%) percent of the total initial capital, or Three Thousand Pesos (Php 3,000.00). At present, the Foundation has seven (7) board members with four (4) foreigners and three (3) Filipinos. Your client seeks to expand the coverage of its activities, which would, however, require it to acquire land in the Philippines. In view thereof, you raised the following queries 1. Given the facts above, is the Foundation regarded as a foreign corporation? If so, can the Foundation acquire real properties, particularly a land? 2. If the Foundation is disqualified to acquire lands, how can the Foundation change its nationality? 3. Consequently, is the Foundation allowed to hold on to such real property while undergoing change of nationality? andPage 2 of 6 4, Can the Foundation transfer its assets to a foreign-based NGO, its main donor, should its existence cease in the Philippines? Relative to your first query, Section 7, Article XII of the 1987 Constitution restricts the ability of a corporation to acquire land in the Philippines, to wit: “Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of public domain.” The determination of whether a corporation may acquire real estate is laid down in Sections 22 and 23 of Commonwealth Act No. 141, which provide: "See. 22. Any citizen of lawful age of the Philippines, and any such citizen not of lawful age who is a head of a family, and any corporation or association of which at least sixty per centum of the capital stock or of any interest in said capital stock belongs wholly to citizens of the Philippines, and which is organized and constituted under the laws of Philippines, and corporate bodies organized in the Philippines authorized under their charters to do so; may purchase any tract of public agricultural land disposable under this Act, not to exceed ‘one hundred and forty-four hectares in the case of an individual and one thousand and twenty-four hectares in that of a corporation or association, by proceeding as prescribed in this chapter: xxx Sec. 23. No person, corporation, association, or partnership other than those mentioned in the last preceding section may acquire or own agricultural public land or land of any other denomination or classification, which is at the time or was originally, really or presumptively, of the public domain, or any permanent improvement thereon, or any real right on such land and improvement. ..." For the determination of the nationality of a corporation, a previous Opinion of the Commission is instructive: Primarily, it is the incorporation test which should be applied in determining the nationality of a corporation. Thus: "Under Philippine jurisdiction, the primary test is always the Place of Incorporation Test since we adhere to the doctrine that a corporation is a creature of the State whose laws it has been created. A. corporation organized under the laws of a foreign country, irrespective of the nationality of the persons who control it is necessarily @ foreign corporation. The control test and the principal place of business test (siege social), are merely adjunct tests, when the place of incorporation test indicates that the subject corporation is organized under Philippine laws.’Page 3 of 6 However, based _upon the foregoing, while the incorporation test serves as the primary test under Philippine jurisdiction, other tests such as the control test must be used for purposes of compliance with the provisions of the Constitution and of other laws on nationality requirements, Even if the corporation is a creature of the State, there is a need to further safeguard/regulate certain areas of inyestment_and_activities_for_the protection of the interests of Filipinos. For instance, the control test is used to determine the eligibility of a corporation, which has foreign equity participation in its_ownership structure, to engage in nationalized or _partly nationalized activities, The nationality of non-stock corporation, in relation to the constitutional provision on land acquisition, is computed on the basis of the nationality of its members and not premised on the membership contribution.” In computing the above required ratio, the extent of voting power of the members should also be taken into consideration, not only the number of members. This is because it is the power to vote that determines control in a corporation. To compute the required ratio merely on the basis of the number of members without taking into account the voting rights of the members may give rise to a possible situation where although foreign interest is only 40% of the total number, all or majority of the voting powers would be held by them and none or less from the 60% Filipino members, so that the corporation would in effect be under alien control.’ In this connection, Section 89 of the Code* provides: “TION 89. Right to vote. — The right of the members of any class or classes to vote may be limited broadened or denied to the extent specified in the articles of incorporation or by-laws. Unless so limited, broadened or denied, each member, regardless of class, shall be entitled to one vote." Thus, in a non-stock corporation, the general rule is that each member shall be entitled to one vote, regardless of the amount of contribution. The exception is when the right of members of any class to vote is limited, broadened, or denied to the extent specified in the articles of incorporation or the by-laws.> " SEC Opinion dated 12 October 2011 addressed to James Yee ? Decasa, Lucilla, Handbook on Private Corporations (Domestic and Foreign), p.527 eiting SEC Opinion dated28 February 2002 addressed to Atty. Victoria A. Timbacaya > SEC Opinion dated 09 November 1995 addressed to Sebastian Liganor Galinato Tierra + Corporation Code of the Philippines (BP 68). SEC Opinion dated 21 July 2015 addressed to COMMO Eduardo T. Domingo AFP (RET), citing Tan v. Sycip & Lim, G.R. No. 153468, August 17, 2006; SEC Opinion dated 17 August 1998, addressed to Atty. Edilberto S, Gaddi; SEC Opinion dated 3 July 1992 addressed to Myma Yao & Patricia M, Alvarez