SEC Guidelines on Compliance with Filipino-Foreign Ownership Requirements

The Securities and Exchange Commission (“SEC”) issued Memorandum Circular No. 8-2013 on May 20, 2013. The Circular sets out the guidelines to determine compliance with the required percentage of Filipino-foreign ownership in corporations engaged in nationalized and partly-nationalized activities.

Nationalized activities refer to those areas of investments which are completely or partly reserved to Philippine nationals pursuant to the 1987 Constitution, the Foreign Investments Act, as amended (“FIA”), and other existing laws such as the Retail Trade Liberalization Act.

The Circular was issued pursuant to the Supreme Court’s directive in the case of Gamboa v. Teves, where the Court interpreted the term “capital” in Article XII, Section 11 of the 1987 Constitution to refer “only to shares of stock entitled to vote in the election of directors.”  Under the Circular, for purposes of determining compliance with the nationality restrictions, the required percentage of Filipino ownership shall be applied to both (a) the total number of outstanding shares of stock entitled to vote in the election of directors, and (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. On the other hand, corporations covered by special laws providing for specific citizenship requirements shall continue to be guided by the provisions of those special laws.  The corporate secretaries of covered corporations are directed to monitor compliance with the provisions of the Circular.

The SEC provided for a one-year grace period to enable all corporations to comply with its new Circular, failing which, the corporation shall be subjected to administrative sanctions under the FIA, as amended.

SEC Memorandum Circular No. 8-2013 took effect immediately after its publication last May 22.

(Imee Manguiat and Grace Lazaro co-authored this post.)