Assignment In Corporation Law:

1.

In our jurisdiction, there are different tests being applied to determine the nationality of a corporation.
Primarily, it is the place of incorporation test which should be applied in determining the nationality of a
corporation since the Philippines adhere to the doctrine that a corporation is a creature of the state
whose laws it has been created.

Based on the Corporation Code, the principal test in determining the nationality of a corporation is the
Place of Incorporation Test. Simply put, Section 123 of the Code states that a corporation will be
deemed foreign corporation if it was “formed, organized or existing under any laws other than those of
the Philippines.”

However, while the incorporation test serves as the primary test, other tests such as the control test
must be used. The control test is used to determine the illegibility of a corporation, which has foreign
equity participation, to engage in nationalized or partly nationalized activities. For instance, owning a
land in the Philippines is a partly nationalized activity, the control test will be applied in determining if a
Foundation is qualified to own land. The SEC-OCG Opinion provides for further guidelines to determine
the nationality of the Foundation for purposes of compliance with the 1987 constitution and
Commonwealth Act No. 141 on the nationality requirements in owning a land in the Philippines:

1.the nationality of a non-stock corporation is computed on the basis of the nationality of its members
and not premised on the membership contribution.

2. the extent of voting power of the members should be taken into consideration, not only the number
of members, because the power to vote determines control in a corporation. In this connection, Section
89 of the Corporation Code provides that the rights 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.

Based on FIA:

Consistent with Article XII, Section 11 of the Constitution, Section 3 (a) of the FIA defines the term
“Philippine national” as (a) a citizen of the Philippines; (b) a domestic partnership or association wholly
owned by citizens of the Philippines; (c) a corporation organized under the laws of the Philippines of
which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or (d) a corporation organized abroad and registered as doing business in the Philippines
under the Corporation Code of which 100% of the capital stock outstanding and entitled to vote of each
of both corporations must be owned and held by citizens of the Philippines, in order for the corporation
to be considered a Philippine national.
2.

In 1991, Congress promulgated RA 7042, or the Foreign Investment Act, reserving certain areas of
economic activities to Filipinos. These areas are referred to us fully nationalized (where no foreign
ownership is permitted) or partly-nationalized (where foreign ownership is limited) activities.

Under FIA, foreign investors may own up to 100% of domestic market enterprises unless foreign
ownership is prohibited or limited by the Constitution and existing law or the Foreign Investment
Negative List referred to under Section 8 of the FIA. Section 8 states that the Negative List must have
two components: List A and List B. List A enumerates the areas of activities and enterprises regulated
pursuant to law. Amendments to List B may be made upon recommendation of the Secretary of
National Defense or Health or Education, endorsed by NEDA, approved by the President, and
promulgated through a Presidential Proclamation. The latest Negative List was promulgated by Pres.
GMA through EO 858 on February 5, 2010.

Under List A of the latest Negative List, up to 40% foreign equity is permitted in the following areas:
exploration, development and use of natural resources; ownership of private lands; operation and
management of public utilities; ownership and administration of educational institutions; culture,
production, milling, processing, trading (excepting retailing) of rice and corn and acquiring by barter,
purchase or otherwise, rice and corn and the by-products thereof; contracts for the supply of materials,
goods and commodities to GOCCs, company, agency or municipal corporations; project proponrnts and
facility operators of Build-Operate-Transfer projects requiring public utilities franchise; operation of
deep sea commercial fishing vessels; adjustment companies; and ownership of condominium units
(where the common areas are co-owned by the owners of the separate units or owned by a
corporation.)

List B allows up to 40% foreign equity in the following sectors: manufacturing, repair, storage and/or
distribution products requiring clearance from the PNP or DND; manufacture and distribution of
dangerous drugs; sauna and steam bathhouses, massage clinic and other like activities; all forms of
gambling (subject to exceptions); domestic market enterprises with paid-in capital of less than the
equivalent of $200,000; and domestic market enterprises which involve advanced technology or employ
at least 50 direct employees with paid-in capital of less than equivalent of $ 100,000.

Under the Constitution:

ARTICLE XVI

GENERAL PROVISIONS

Section 11. (1) The ownership and management of mass media shall be limited to citizens of the
Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such
citizens.
The Congress shall regulate or prohibit monopolies in commercial mass media when the public interest
so requires. No combinations in restraint of trade or unfair competition therein shall be allowed.

(2) The advertising industry is impressed with public interest, and shall be regulated by law for the
protection of consumers and the promotion of the general welfare.

Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which
is owned by such citizens shall be allowed to engage in the advertising industry.

The participation of foreign investors in the governing body of entities in such industry shall be limited
to their proportionate share in the capital thereof, and all the executive and managing officers of such
entities must be citizens of the Philippines.

ARTICLE XII

NATIONAL ECONOMY AND PATRIMONY

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-
five years, and under such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.

The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as
cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays,
and lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the State
shall promote the development and use of local scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution.

ARTICLE II

DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 8. The Philippines, consistent with the national interest, adopts and pursues a policy of freedom
from nuclear weapons in its territory.

ARTICLE XII

NATIONAL ECONOMY AND PATRIMONY

Section 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 the public
domain.

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens;
nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.

3.

Gamboa vs. Teves

652 SCRA 690

The 1987 Constitution provides for the Filipinization of public utilities by requiring that any form of
authorization for the operation of public utilities should be granted only to Philippine citizens or to
corporations or associations organized under the laws of the Philippines at least 60% of whose capital is
owned by such citizens.

The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public
utilities, which may be inimical to the national interest.

We rule the term capital in Sec.11 Article 12 of the Constitution should cover both: (a) the control test
that covers only shares of stock entitled to vote in the election of directors; and the beneficial interest
test, that the 60%-40% equity in favour of Filipinos shall apply to each and every class of shares, to
common shares, to preferred non-voting shares, to preferred voting shares, and other classes of shares.

Narra Nickel Mining vs. Redmont Consolidated

April 21, 2014

The control test is still the prevailing mode of determination whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2 Art. II of the Constitution, entitled to undertake the exploration,
development and utilization of the natural resources. When in the mind of the Court there is doubt,
based on the attendant circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the grandfather rule.
Strategic Alliance vs. Radstock

607 SCRA 413 (2009)

Radstock, a foreign corporation with unknown owners whose nationalities are also unknown, is not
qualified to own land in the Philippines. Since it is disqualified to own land, it is also disqualified to own
the rights of ownership of lands in the Philippines – it is basic that an assignor or seller cannot assign or
sell something he does not own at the time of ownership, or the rights to the ownership, are to be
transferred to the assignee or buyer. The assignment by PNCC of the real properties to a nominee to be
designated by Radstock is a circumvention of the constitutional prohibition against a foreign corporation
owning lands in the Philippines.