How to determine the nationality of a corporation

The Constitution and various laws reserve certain areas of activities to Philippine citizens or to corporations that have a minimum percentage of Filipino ownership.  For example, with respect to corporations, ownership of land is limited to corporations “at least sixty per centum of whose capital is owned” by Philippine citizens.  If 60% of the capital of a Philippine corporation is owned by individuals who are Philippine citizens, then there would be no issue on whether the Philippine corporation is a Philippine national qualified to own land.  On the other hand, an issue would arise if 60% of the capital of the Philippine corporation is owned, in turn, by another Philippine corporation that has foreign stockholders.

If a Philippine corporation has corporate stockholders, how does one determine whether such Philippine corporation is a Philippine national?  Two tests have been employed in the Philippines:  (a)  the grandfather rule;  and (b)  the control test.

To illustrate how these tests are applied, let’s take a Philippine corporation (called “Corporation X”) with the following ownership structure:

(a) non-Philippine citizens own 40% of the capital stock outstanding and entitled to vote of Corporation X;

(b) another Philippine corporation (called “Corporation Y”) owns 60% of the capital stock outstanding and entitled to vote of Corporation X.

On other hand, Corporation Y has the following ownership structure:

(a) non-Philippine citizens own 40% of the capital stock outstanding and entitled to vote of Corporation Y;

(b) Philippine citizens own 60% of the capital stock outstanding and entitled to vote of Corporation Y.

Let’s also assume that Philippine citizens constitute at least 60% of the members of the board of directors of each of Corporation X and Corporation Y.

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