TESTS

1.) Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp.,
748 SCRA 455, G.R. No. 195580 January 28, 2015
Facts
 Petitioners’ share structures: each corporation’s 10,000 common shares were held 59.97
percent by a nominally Filipino intermediary and 39.98 percent directly by MBMI.
 Intermediary’s shares were in turn held 66.63 percent (or 65.96 percent) by another
Filipino corporation and 33.31 percent (or 33.96 percent) by MBMI.
Issue
 Proper method to determine corporate nationality for MPSA eligibility—application of
the Control Test versus the Grandfather Rule.
Ratio Decidendi
 Nationality Determination Methodology:
 Control Test (per Constitution and FIA) remains the primary measure: at least 60 percent
of voting capital must be Filipino‐owned.
 Grandfather Rule serves as a supplementary tool when doubt exists about effective
beneficial ownership and control.
 Consistent administrative and judicial authorities (SEC, DOJ, BIR, prior SC decisions)
endorse using the Grandfather Rule to trace upstream ownership and reveal dummy
arrangements.
In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. XII of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the natural
resources of the Philippines. When in the mind of the Court, there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino equity ownership in the
corporation, then it may apply the "grandfather rule." (emphasis supplied)
To reiterate, Sec. 2, Art. XII of the Constitution reserves the exploration, development, and
utilization of natural resources to Filipino citizens and "corporations or associations at least sixty
per centum of whose capital is owned by such citizens." Similarly, Section 3(aq) of the
Philippine Mining Act of 1995 considers a "corporation x x x registered in accordance with law
at least sixty per cent of the capital of which is owned by citizens of the Philippines" as a person
qualified to undertake a mining operation. Consistent with this objective, the Grandfather Rule
was originally conceived to look into the citizenship of the individuals who ultimately own and
control the shares of stock of a corporation for purposes of determining compliance with the
constitutional requirement of Filipino ownership. It cannot, therefore, be denied that the framers
of the Constitution have not foreclosed the Grandfather Rule as a tool in verifying the nationality
of corporations for purposes of ascertaining their right to participate in nationalized or partly
nationalized activities. The following excerpts from the Record of the 1986 Constitutional
Commission suggest as much:
Application of the grandfather
Rule with the Control Test.
As exemplified by the above rulings, opinions, decisions and this Court’s April 21, 2014
Decision, the Control Test can be, as it has been, applied jointly with the Grandfather Rule to
determine the observance of foreign ownership restriction in nationalized economic activities.
The Control Test and the Grandfather Rule are not, as it were, incompatible ownership-
determinant methods that can only be applied alternative to each other. Rather, these methods
can, if appropriate, be used cumulatively in the determination of the ownership and control of
corporations engaged in fully or partly nationalized activities, as the mining operation involved
in this case or the operation of public utilities as in Gamboa or Bayantel.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership
and control in a corporation, as it could result in an otherwise foreign corporation rendered
qualified to perform nationalized or partly nationalized activities. Hence, it is only when the
Control Test is first complied with that the Grandfather Rule may be applied. Put in another
manner, if the subject corporation’s Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino corporation if there is no doubt as to who has the
"beneficial ownership" and "control" of the corporation. In that instance, there is no need for a
dissection or further inquiry on the ownership of the corporate shareholders in both the investing
and investee corporation or the application of the Grandfather Rule.12 As a corollary rule, even
if the 60-40 Filipino to foreign equity ratio is apparently met by the subject or investee
corporation, a resort to the Grandfather Rule is necessary if doubt exists as to the locus of the
"beneficial ownership" and "control." In this case, a further investigation as to the nationality of
the personalities with the beneficial ownership and control of the corporate shareholders in both
the investing and investee corporations is necessary.
As explained in the April 21,2012 Decision, the "doubt" that demands the application of the
Grandfather Rule in addition to or in tandem with the Control Test is not confined to, or more
bluntly, does not refer to the fact that the apparent Filipino ownership of the corporation’s equity
falls below the 60% threshold. Rather, "doubt" refers to various indicia that the "beneficial
ownership" and "control" of the corporation do not in fact reside in Filipino shareholders but in
foreign stakeholders. As provided in DOJ Opinion No. 165, Series of 1984, which applied the
pertinent provisions of the Anti-Dummy Law in relation to the minimum Filipino equity
requirement in the Constitution, "significant indicators of the dummy status" have been
recognized in view of reports "that some Filipino investors or businessmen are being utilized or
[are] allowing themselves to be used as dummies by foreign investors" specifically in joint
ventures for national resource exploitation. These indicators are:
1. That the foreign investors provide practically all the funds for the joint investment undertaken
by these Filipino businessmen and their foreign partner;
2. That the foreign investors undertake to provide practically all the technological support for the
joint venture;
3. That the foreign investors, while being minority stockholders, manage the company and
prepare all economic viability studies.
Thus, In the Matter of the Petition for Revocation of the Certificate of Registration of Linear
Works Realty Development Corporation,13 the SEC held that when foreigners contribute more
capital to an enterprise, doubt exists as to the actual control and ownership of the subject
corporation even if the 60% Filipino equity threshold is met. Hence, the SEC in that one ordered
a further investigation, viz:
The [SEC Enforcement and Prosecution Department (EPD)] maintained that the basis for
determining the level of foreign participation is the number of shares subscribed, regardless of
the par value. Applying such an interpretation, the EPD rules that the foreign equity participation
in Linear works Realty Development Corporation amounts to 26.41% of the corporation’s capital
stock since the amount of shares subscribed by foreign nationals is 1,795 only out of the 6,795
shares. Thus, the subject corporation is compliant with the 40% limit on foreign equity
participation. Accordingly, the EPD dismissed the complaint, and did not pursue any
investigation against the subject corporation.

2.) Roy III v. Herbosa, GR 207246, 22 November 2016

Facts:
 The case stemmed from the Securities and Exchange Commission's (SEC) issuance of
Memorandum Circular No. 8, Series of 2013 (SEC MC No. 8), which provided
guidelines for determining compliance with Filipino ownership requirements in
nationalized and partly nationalized activities. This followed the Supreme Court's
Gamboa v. Teves decision, which interpreted Article XII, Section 11 of the 1987
Constitution regarding foreign ownership in public utilities. The Gamboa decision
clarified that "capital" referred to shares with voting rights. Petitioner Roy III challenged
SEC MC No. 8, arguing it contradicted Gamboa. The SEC maintained that its circular
was consistent with Gamboa's intent.
Interpretation of “Capital” under the Constitution
Article XII, Section 11 requires at least 60 percent Filipino ownership of a public utility’s capital.
Gamboa held that “capital” means shares entitled to vote for directors and that “full beneficial
ownership” of both voting and non-voting shares must rest in Filipino hands. SRC-IRR and FIA-
IRR definitions of “beneficial ownership” reinforce that control and investment returns together
define true ownership.
SEC Memorandum Circular No. 8 and Compliance with Gamboa
MC 8 applies the 60-percent Filipino-ownership rule uniformly to (a) total voting shares and (b)
total outstanding shares, consonant with the dispositive ruling in Gamboa. The SEC’s issuance of
MC 8 faithfully implements the Supreme Court’s directive and does not exceed or usurp its
jurisdiction.

3.) Unchuan v. Lozada, GR 172671, 16 April 2009

Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered co-owners of
Lot Nos. 898-A-3 and 898-A-4 covered by Transfer Certificates of Title (TCT) Nos. 532585 and
532576 in Cebu City.
The sisters, who were based in the United States, sold the lots to their nephew Antonio J.P.
Lozada (Antonio) under a Deed of Sale7 dated March 11, 1994. Armed with a Special Power of
Attorney8 from Anita, Peregrina went to the house of their brother, Dr. Antonio Lozada (Dr.
Lozada), located at 4356 Faculty Avenue, Long Beach California.9 Dr. Lozada agreed to advance
the purchase price of US$367,000 or ₱10,000,000 for Antonio, his nephew. The Deed of Sale
was later notarized and authenticated at the Philippine Consul’s Office. Dr. Lozada then
forwarded the deed, special power of attorney, and owners’ copies of the titles to Antonio in the
Philippines. Upon receipt of said documents, the latter recorded the sale with the Register of
Deeds of Cebu. Accordingly, TCT Nos. 12832210 and 12832311 were issued in the name of
Antonio Lozada.
At the trial, respondents presented a notarized and duly authenticated sworn statement, and a
videotape where Anita denied having donated land in favor of Marissa. Dr. Lozada testified that
he agreed to advance payment for Antonio in preparation for their plan to form a corporation.
The lots are to be eventually infused in the capitalization of Damasa Corporation, where he and
Antonio are to have 40% and 60% stake, respectively. Meanwhile, Lourdes G. Vicencio, a
witness for respondents confirmed that she had been renting the ground floor of Anita’s house
since 1983, and tendering rentals to Antonio.
In this case, we find nothing to show that the sale between the sisters Lozada and their nephew
Antonio violated the public policy prohibiting aliens from owning lands in the Philippines. Even
as Dr. Lozada advanced the money for the payment of Antonio’s share, at no point were the lots
registered in Dr. Lozada’s name. Nor was it contemplated that the lots be under his control for
they are actually to be included as capital of Damasa Corporation. According to their agreement,
Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said corporation, respectively.
Under Republic Act No. 7042,27 Particularly Section 3,28 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, is considered a Philippine National. As such, the
corporation may acquire disposable lands in the Philippines. Neither did petitioner present proof
to belie Antonio’s capacity to pay for the lots subjects of this case.
The term "Philippine National" shall mean a citizen of the Philippines or a domestic partnership
or association wholly owned by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines

4.) Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines,
GR 199580, 21 April 2014 AND 28 January 2015
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose of
engaging in mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per cent (60%) of the
capital of which is owned by citizens of the Philippines: Provided, That a legally organized
foreign-owned corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral processing permit.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other
laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural
resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
shares are registered in the name of a corporation or partnership at least 60% of the capital stock
or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in
the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application of
the "control test" under RA 7042, as amended by RA 8179, otherwise known as the Foreign
Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent provision
under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership
or association wholly owned by the citizens of the Philippines; a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That were
a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the Board of Directors, in
order that the corporation shall be considered a Philippine national. (emphasis supplied)
"Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been abandoned must be discredited for lack of
basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 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.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the
Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control
Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the
liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality." Under the Strict
Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of
Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the Investee Corporation
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders
with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation
which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-
40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.
(emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since
their common investor, the 100% Canadian corporation––MBMI, funded them. However,
petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than
60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60%
fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only
made an example of an instance where "doubt" as to the ownership of the corporation exists. It
would be ludicrous to limit the application of the said word only to the instances where the
stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a
corporation. The corporations interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless for these applying corporations to
state in their respective articles of incorporation that they have less than 60% Filipino
stockholders since the applications will be denied instantly. Thus, various corporate schemes and
layerings are utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.
In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution,
entitled to undertake the exploration, development and utilization of the natural resources of the
Philippines. When in the mind of the Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may
apply the "grandfather rule."

Nationality of Corporations: Control Test

1. Constitutional and Statutory Framework
The nationality of corporations is a critical concept in Philippine law, particularly due to the
constitutional and statutory restrictions on the ownership and operation of certain businesses and
properties by foreign entities. The Constitution of the Philippines limits foreign participation in
various sectors such as land ownership, natural resources, public utilities, educational
institutions, and mass media.
Constitutional Provisions:
Article XII, Section 2 of the 1987 Philippine Constitution provides that the exploration,
development, and utilization of natural resources shall be under the full control and supervision
of the State and that foreign ownership should not exceed 40%.
Article XII, Section 11 states that no franchise, certificate, or authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or corporations where at least
60% of the capital is owned by Filipino citizens.
The statutory provisions on nationality requirements can be found in various laws like the
Foreign Investments Act (RA 7042) and Republic Act No. 8179 amending the Foreign
Investments Act, which specifies that businesses wholly or partially owned by foreign entities are
restricted from engaging in activities that fall under the Philippine Constitution’s Foreign
Investment Negative List (FINL).
2. The "Control Test" – Doctrine Overview
In determining the nationality of a corporation for purposes of compliance with the Constitution
and other laws restricting foreign ownership, Philippine jurisprudence has adopted the Control
Test (also referred to as the "Grandfather Rule" when used in certain contexts).
Under the Control Test, the nationality of a corporation is determined by the nationality of the
stockholders who control the corporation. The test emphasizes the actual control of the
corporation, and not merely the formal legal structure. The basic tenet of this rule is that the
corporation's citizenship is aligned with that of the controlling shareholders.
The Supreme Court of the Philippines, in several cases, has expounded upon this principle,
emphasizing that it is the actual control that should dictate whether the corporation is Filipino or
foreign.
Landmark Case: Narra Nickel Mining v. Redmont Consolidated Mines (G.R. No. 195580,
April 21, 2014)
One of the key cases that reinforced the application of the Control Test is Narra Nickel Mining
and Development Corp. v. Redmont Consolidated Mines Corp. This case involved a dispute over
the nationality of a mining corporation engaged in the extraction of natural resources, an activity
reserved exclusively for Filipino citizens or corporations that are at least 60% Filipino-owned.
In this case, the Supreme Court ruled that the Control Test takes precedence over the Grandfather
Rule in determining the nationality of a corporation. The Court rejected the argument that foreign
shareholders holding minority ownership could exercise control through indirect means. Instead,
it emphasized that control refers to both the ownership and management of the corporation.
The Control Test looks at the corporate governance structure, including the composition of the
board of directors and the officers of the corporation. Even if a corporation is formally compliant
with the 60-40 rule on the face of stock ownership, it can still be deemed foreign if it can be
shown that foreign nationals exercise control over the corporation through voting power or
influence over decision-making processes.
3. The Grandfather Rule vs. Control Test
While the Control Test is the prevailing doctrine, there are instances when the Grandfather Rule
(or the "piercing the veil of corporate fiction" rule) is invoked to supplement or further clarify the
nationality determination.
Grandfather Rule Defined
The Grandfather Rule involves tracing the nationality of shareholders through layers of
ownership. If a Filipino-owned corporation is in turn owned by another corporation, which has
foreign shareholders, the rule requires looking beyond the nominal ownership to the underlying
layers to determine whether the foreign shareholders ultimately control the company.
For example, a corporation may appear to be 60% Filipino-owned, but the Grandfather Rule
would trace the ownership of the 60% Filipino shareholders. If these Filipino shareholders are
found to be mere dummies for foreign nationals, the corporation will be treated as foreign.
Control Test vs. Grandfather Rule in Practice
The Control Test is generally the preferred method in determining the nationality of a
corporation. It simplifies the determination by focusing on effective control at the operational
level, which is often evidenced by who controls the corporate board and decision-making power.
The Grandfather Rule is invoked when there is suspicion that the formal application of the
Control Test is being circumvented through layers of corporate ownership to mask the true
identity of the shareholders or ultimate control.
The Supreme Court has clarified that the Grandfather Rule is not automatically applied but is
instead used to pierce the veil of corporate fiction when there is sufficient evidence of corporate
structuring meant to evade nationality restrictions.
4. Key Considerations in Applying the Control Test
When determining control, the following factors are generally considered:
Ownership of voting shares: A simple majority of 60% of the capital stock is owned by Filipino
citizens.
Management and decision-making: The composition of the board of directors and corporate
officers (president, treasurer, etc.) must be predominantly Filipino to align with the ownership
structure.
Corporate control and influence: Even if 60% of the capital stock is Filipino-owned, foreign
nationals cannot exercise controlling influence over the corporation's policies and operations.
5. Practical Implications for Corporations
Corporations that engage in activities subject to nationality restrictions must ensure that they
comply with the Control Test and constitutional requirements. This involves:
Structuring ownership to ensure compliance with the 60-40 rule.
Ensuring that control at the level of the board of directors and key officers is exercised by
Filipinos.
Being prepared for potential challenges invoking the Grandfather Rule if foreign nationals are
suspected of circumventing nationality restrictions through complex ownership structures.
6. Conclusion
The Control Test is the dominant method for determining the nationality of a corporation under
Philippine law. It emphasizes actual control over nominal ownership and is used to ensure
compliance with constitutional restrictions on foreign participation in certain sectors. While the
Grandfather Rule can be applied to supplement this test, its application is more limited and is
generally invoked only when there is suspicion of evasion of the nationality restrictions.
Corporations must carefully structure both ownership and management to align with the
requirements and avoid potential legal issues.
Under the Foreign Investments Act (FIA) of the Philippines—Republic Act (R.A.) No. 7042,
as amended by R.A. Nos. 8179 and 11647—the regulations governing foreign corporations
and their participation in certain industries in the Philippines are meticulously outlined.
This act, alongside pertinent statutes, determines the types of businesses and sectors foreign
investors may or may not participate in, specifying which are "nationalized" and,
therefore, limited to or reserved exclusively for Filipinos. Here's a detailed analysis of the
relevant provisions and interpretations under the Foreign Investments Act:
1. Foreign Investments Act (FIA) Overview
The FIA was enacted to promote foreign investment in the Philippines, aiming to provide a
competitive business environment that could attract foreign capital and enhance economic
development. It establishes a framework for foreign equity participation and clarifies limitations
for foreign entities based on a list of nationalized or restricted activities, often referred to as the
Foreign Investment Negative List (FINL).
2. Foreign Investment Negative List (FINL)
The FINL categorizes economic activities where foreign participation is limited or prohibited.
This list is regularly updated by the Philippine government to adapt to changing economic needs
and national interests. The list includes:
List A: Activities in which foreign ownership is restricted by mandate of the Philippine
Constitution or specific laws.
List B: Activities where foreign ownership is limited due to security, defense, risk to health and
morals, or protection of local industries that are small or are classified as medium-scale
enterprises.
3. Nationalized Activities
Nationalized activities are economic sectors that are constitutionally or legislatively reserved for
Filipino citizens or entities with majority Filipino ownership. These include:
Mass Media - Completely reserved for Filipino citizens (Article XVI, Section 11 of the
Philippine Constitution).
Land Ownership - Limited to Filipinos and Philippine corporations, with some exceptions for
leases.
Natural Resources Exploration, Development, and Utilization - Reserved for Filipino citizens or
corporations that are at least 60% Filipino-owned.
Public Utilities - Defined broadly to include electricity distribution, water, and
telecommunications. Currently, foreign ownership is limited to a maximum of 40%.
Educational Institutions - Limited to entities with at least 60% Filipino ownership.
Retail Trade - Restrictions apply, particularly for small-scale retail businesses, to protect local
entrepreneurs.
Advertising - Requires majority Filipino ownership.
The goal behind these nationalized activities is to ensure Filipino control over resources and
industries that impact national security, culture, and the economy.
4. Amendments under R.A. No. 8179 and R.A. No. 11647
R.A. No. 8179 and R.A. No. 11647 amended the original Foreign Investments Act to liberalize
foreign ownership restrictions further, thereby attracting more foreign investments to the
Philippines. These amendments:
Eased restrictions on foreign equity, especially in sectors where the Philippines seeks foreign
expertise or investment to spur development.
Provided clearer distinctions between nationalized activities and those open to foreign
ownership.
Expanded the activities allowed to foreign investors, particularly for export-oriented enterprises.
R.A. No. 11647 most notably introduced changes in 2022 that streamlined the registration and
regulatory compliance processes for foreign corporations investing in allowed sectors.
5. Regulations and Compliance for Foreign Corporations
Foreign corporations interested in conducting business in the Philippines must comply with
specific legal and regulatory requirements to operate. These include:
Registration with the Securities and Exchange Commission (SEC): Foreign corporations must
register with the SEC, providing essential information on their operations, ownership structure,
and capital.
Obtaining a License to Transact Business: The SEC requires that foreign corporations acquire a
license to conduct business, which is mandatory for entities planning to operate continuously
within the Philippines.
Compliance with Nationalization Restrictions: Foreign investors must respect ownership
limitations set out in the FINL and comply with nationality requirements in nationalized sectors.
6. Key Considerations for Foreign Investors
For foreign entities or individuals looking to invest in the Philippines, it is crucial to understand
the restrictions outlined by the FINL:
Thresholds and Ownership Caps: The thresholds for foreign ownership vary depending on the
sector and are specified under the FINL.
Grandfather Rule: In cases where ownership is disputed, the Grandfather Rule may apply,
wherein the SEC evaluates actual control and equity structure to ensure compliance with
ownership restrictions.
Foreign corporations must adapt to these thresholds, whether they involve a partnership, a
corporation, or other forms of business structures, such as representative offices or regional
headquarters.
7. Incentives for Foreign Corporations
The FIA, particularly after the amendments, includes incentives designed to attract foreign
investments, such as tax holidays, exemption from certain import duties, and easier repatriation
of profits. These incentives primarily target foreign-owned export enterprises and companies that
provide high economic or employment impact.
8. Important Regulatory Bodies
Aside from the SEC, other government agencies play essential roles in regulating foreign
investments in the Philippines:
Board of Investments (BOI): Facilitates incentives for foreign entities in priority sectors,
particularly those open to foreign equity participation.
National Economic and Development Authority (NEDA): Contributes to determining sectors that
will benefit from foreign investments.
Bangko Sentral ng Pilipinas (BSP): Regulates foreign exchange and repatriation of profits for
foreign corporations.
9. Implications for Foreign Corporations
Foreign corporations must adhere to the ownership restrictions to legally operate within the
Philippines and fully benefit from incentives. Non-compliance could result in administrative
sanctions, revocation of licenses, and potential penalties under Philippine law.
In conclusion, while the Foreign Investments Act and its amendments through R.A. Nos. 8179
and 11647 have made significant strides in opening the Philippine economy to foreign investors,
the FINL remains a critical tool in protecting specific nationalized industries and ensuring
Filipino control over strategic sectors.

Separate Juridical Personality

Hongkong and Shanghai Banking Corp. (HSBC), Ltd. Staff Retirement Plan v. Spouses
Galang, G.R. Nos. 199565 & 199635, [June 30, 2021]
HSBC-SRP and HSBC are separate entities
Finally, in refusing to dismiss the case against HSBC, the Court of Appeals seemingly applied a
variation of the doctrine of piercing the veil of corporate fiction, thus: when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or one and the same.84
We disagree.
Though a subsidiary company's separate corporate personality may be disregarded when the
evidence shows that such separate personality was being used by its parent or holding
corporation to perpetrate a fraud or evade an existing obligation,85 none of these circumstances
were alleged or proved by Spouses Galang. They simply claimed that HSBC-SRP and HSBC
acted in bad faith when they foreclosed the mortgaged property though they (Spouses Galang)
were up to date in their payments.
More, the insistence of Spouses Galang that HSBC was privy to the Mortgage Agreement for its
interests are so intertwined with those of HSBC- SRP that they have become identical —
constitutes a collateral attack on the corporate personality of HSBC-SRP which is prohibited by
the Corporation Code of the Philippines.86 Such an inquiry into the legal personality of a
corporation may only be made by the Solicitor General in a Quo Warranto proceeding.
At any rate, HSBC correctly argues that it had no participation in the foreclosure proceedings.
The parties even stipulated during the pre-trial that HSBC was not a signatory to any contract
between Spouses Galang and HSBC-SRP. Its role was limited to determining who among its
employees were eligible to apply for housing loans, processing and approval of which were left
to the discretion of HSBC-SRP.
Considering, too, that Spouses Galang are not entitled to damages, there is simply no reason to
pierce the corporate veil as they would have nothing to collect or regain from HSBC. Otherwise
stated, Spouses Galang do not have a cause of action against HSBC.
All told, the Court of Appeals correctly nullified the foreclosure sale, albeit for a different reason.
Meanwhile, there is simply no reason to involve HSBC in the fray as a non-party to the
Mortgage Agreement. Consequently, the Court is compelled to dismiss the petition of HSBC-
SRP and grant the petition of HSBC.

Stradcom Corp v. Orpilla, GR 206800, 2 July 2018

It is well-settled that a corporation has its own legal personality separate and distinct from those
of its stockholders, directors or officers. Absence of any evidence that a corporate officer and/or
director has exceeded their authority, or their acts are tainted with malice or bad faith, they
cannot be held personally liable for their official acts. Here, there was neither any proof that
Chua acted without or in excess of his authority nor was motivated by personal ill-will towards
respondent to be solidarily liable with the company. We quote with affirmation the NLRC's
pronouncement, viz:
Finally, on the issue of whether or not the Labor Arbiter committed manifest error in ordering
appellant Chua solidarily liable with appellant corporation, we have to rule in the affirmative.
Appellant Chua cannot be made solidarily liable with appellant corporation for any award in
favor of appellee. Appellant corporation is separate and distinct from Appellant Chua.
Appellant Chua's acts were official acts, done in his capacity as an officer of appellant
corporation on its behalf. There is no showing of any act, or that he acted without or in excess of
his authority or was motivated by personal ill-will toward appellee. Stated simply, appellant
Chua was merely doing his job. In fact, he even tried to save appelle from undue embarrassment.

Aboitiz Equity Ventures, Inc. vs. Chiongbian, 729 SCRA 580, G.R. No. 197530 July 9, 2014
It is basic that a corporation has a personality separate and distinct from that of its individual
stockholders. Thus, a stockholder does not automatically assume the liabilities of the corporation
of which he is a stockholder. As explained in Philippine National Bankv. Hydro Resources
Contractors Corporation:118
A corporation is an artificial entity created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized by law or incident to
its existence. It has a personality separate and distinct from that of its stockholders and from that
of other corporations to which it may be connected. As a consequence of its status as a distinct
legal entity and as a result of a conscious policy decision to promote capital formation, a
corporation incurs its own liabilities and is legally responsible for payment of its obligations. In
other words, by virtue of the separate juridical personality ofa corporation, the corporate debt or
credit is not the debt or credit of the stockholder. This protection from liability for shareholders is
the principle of limited liability.119
In fact, even the ownership by a single stockholder of all or nearly all the capital stock of a
corporation is not, in and of itself, a ground for disregarding a corporation’s separate personality.
As explained in Secosa v. Heirs of Francisco:120
It is a settled precept in this jurisdiction that a corporation is invested by law with a personality
separate from that of its stockholders or members. It has a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to which it may be
related. Mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not in itself sufficient ground for disregarding the separate
corporate personality.A corporation’s authority to act and its liability for its actions are separate
and apart from the individuals who own it.
The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation
and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal
entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity
is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons. Also, the corporate entity may be disregarded
in the interest of justice in such cases asfraud that may work inequities among members of the
corporation internally, involving no rights of the public or third persons. In both instances, there
must have been fraud and proof of it. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed.121 (Emphasis supplied)
AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV liable for
ATSC’s obligations. Moreover, the SPA does not contain any stipulation which makes AEV
assume ATSC’s obligations. It is true that Section 6.8 of the SPA stipulates that the rights and
obligations arising from Annex SL-V are not terminated. But all that Section 6.8 does is
recognize that the obligations under Annex SL-V subsist despite the termination of the January 8,
1996 Agreement. At no point does the text of Section 6.8 support the position that AEV steps
into the shoes of the obligor under Annex SL-V and assumes its obligations.
Neither does Section 6.5 of the SPAsuffice to compel AEV to submit itself to arbitration. While it
is true that Section 6.5 mandates arbitration as the mode for settling disputes between the parties
to the SPA, Section 6.5 does not indiscriminatelycover any and all disputes which may arise
between the parties to the SPA. Rather, Section 6.5 is limited to "dispute[s] arising between the
parties relating tothis Agreement [i.e., the SPA]."122 To belabor the point, the obligation which
is subject of the present dispute pertains to Annex SL-V, not to the SPA. That the SPA, in Section
6.8, recognizes the subsistence of Annex SL-Vis merely a factual recognition. It does not create
new obligations and does not alter or modify the obligations spelled out in Annex SL-V.
AEV was drawn into the present controversy on account of its having entered into the SPA. This
SPA made AEV a stockholder of WLI/WG&A/ATSC. Even then, AEV retained a personality
separate and distinct from WLI/WG&A/ATSC. The SPA did not render AEV personally liable
for the obligations of the corporation whose stocks it held.
The obligation animating CAGLI’s desire to arbitrate is rooted in Annex SL-V. Annex SL-V is a
contractentirely different from the SPA. It created distinct obligations for distinctparties. AEV
was never a party to Annex SL-V. Rather than pertaining to AEV, Annex SL-V pertained to a
different entity: WLI (renamed WG&A then renamed ATSC). AEV is, thus, not bound by Annex
SL-V.
On one hand, Annex SL-V does not stipulate that disputes arising from it are to be settled via
arbitration.On the other hand, the SPA requires arbitration as the mode for settling disputes
relating to it and recognizes the subsistence of the obligations under Annex SL-V. But as a
separate contract, the mere mention of Annex SL-V in the SPA does not suffice to place Annex
SL-V under the ambit of the SPA or to render it subject to the SPA’s terms, such as the
requirement to arbitrate.

Palm Avenue Holding Co., Inc. v. Sandiganbayan, GR 173082, 6 August 201

The aforesaid provision mandates the Republic to file the corresponding judicial action or
proceedings within a six-month period (from its ratification on February 2, 1987)in order to
maintain sequestration, non-compliance with which would result in the automatic lifting of the
sequestration order. The Court’s ruling in Presidential Commission on Good Government v.
Sandiganbayan,12 which remains good law, reiterates the necessity of the Republic to actually
implead corporations as defendants in the complaint, out of recognition for their distinct and
separate personalities, failure to do so would necessarily be denying such entities their right to
due process.13 Here, the writ of sequestration issued against the assets of the Palm Companies is
not valid because the suit in Civil Case No. 0035 against Benjamin Romualdez as shareholder in
the Palm Companies is not a suit against the latter. The Court has held, contrary to the assailed
Sandiganbayan Resolution in G.R. No. 173082, that failure to implead these corporations as
defendants and merely annexing a list of such corporations to the complaints is a violation of
their right to due process for it would be, in effect, disregarding their distinctand separate
personality without a hearing.14 Here, the Palm Companies were merely mentioned as Item Nos.
47 and 48, Annex A of the Complaint,as among the corporations where defendant Romualdez
owns shares of stocks. Furthermore, while the writ of sequestration was issued on October 27,
1986, the Palm Companies were impleaded in the case only in 1997, or already a decade from
the ratification of the Constitution in 1987, way beyond the prescribed period.
The argument that the beneficial owner of these corporations was, anyway, impleaded as party-
defendant can only be interpreted as a tacit admission of the failure to file the corresponding
judicial action against said corporations pursuant to the constitutional mandate. Whether or not
the impleaded defendant in Civil Case No. 0035 is indeed the beneficial owner of the Palm
Companies is a matter which the PCGG merely assumes and still has to prove in said case.15
The sequestration order issued against the Palm Companies is therefore deemed automatically
lifted due to the failure of the Republic to commence the proper judicial action or to implead
them therein within the period under the Constitution. However, the lifting of the writ of
sequestration will not necessarily be fatal to the main case since the same does not ipso facto
mean that the sequestered properties are, in fact, not illgotten. The effect of the lifting ofthe
sequestration will merely be the termination of the government’s role asconservator. In other
words, the PCGG may no longer exercise administrative or housekeeping powers, and its
nominees may no longer vote the sequestered shares to enable them to sit in the corporate board
of the subject company.16

The Republic, through the PCGG, may argue that it has substantially complied with the
Constitutional requirements to support its sequestration order when it filed an amended
complaint which impleaded the Palm Companies, and which was subsequently admitted by the
Sandiganbayan. Even so, a careful perusal of the records reveals the existence of legal and
factual grounds to warrant the lifting of the writ of sequestration against the assets of the Palm
Companies.
Metroheights Subdivision Homeowners Association Inc. v. CMSConstruction and
Development Corp, GR 209359, 17 October 2018
Facts:
 Metroheights Subdivision had a separate water service connection on Visayas Avenue,
funded by its members. CMS Construction, contracted by MWSS for a rehabilitation
project in Sanville Subdivision, cut off and disconnected Metroheights' water line without
prior notice, causing a three-day water service interruption. The Homeowners Association
filed a complaint for damages.
Issue
 Are the directors and stockholders of CMS Construction personally liable for the
damages caused by the corporation?
Ruling:
 No, the directors and stockholders of CMS Construction (the Cruzes) are not personally
liable.
  The Court cited Section 31 of the Corporation Code, which governs the personal liability
of directors, trustees, or officers.
 The Court found that Metroheights failed to prove that the Cruzes willfully and
knowingly voted for or assented to patently unlawful acts of the corporation, or were
guilty of gross negligence or bad faith, or acquired any personal or pecuniary interest in
conflict with their duty.
We find that respondents MWSS and CMS Construction should be held liable for damages to
petitioner but not the Cruzes who are the directors and stockholders of respondent CMS
Construction. Section 31 of the Corporation Code is the governing law on personal liability of
officers for the debts of the corporation, to wit:
Sec. 31. Liability of directors, trustees or officers. — Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
We find that petitioner failed to show that the Cruzes committed any of those above-quoted acts
to make them personally liable.

Crystal v. BPI, GR 172428, 28 November 2008

Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injuries unjustly caused.30 Such damages, to be recoverable, must be the proximate
result of a wrongful act or omission the factual basis for which is satisfactorily established by the
aggrieved party.31 There being no wrongful or unjust act on the part of BPI in demanding
payment from them and in seeking the foreclosure of the chattel and real estate mortgages, there
is no lawful basis for award of damages in favor of the spouses.
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.32 The Court of
Appeals found BPI as "being famous and having gained its familiarity and respect not only in the
Philippines but also in the whole world because of its good will and good reputation must protect
and defend the same against any unwarranted suit such as the case at bench."33 In holding that
BPI is entitled to moral damages, the Court of Appeals relied on the case of People v. Manero,34
wherein the Court ruled that "[i]t is only when a juridical person has a good reputation that is
debased, resulting in social humiliation, that moral damages may be awarded."35
We do not agree with the Court of Appeals. A statement similar to that made by the Court in
Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,36 thus:
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A corporation may have good reputation which, if
besmirched may also be a ground for the award of moral damages. x x x (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,37 and
Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian
College of Medicine (AMEC-BCCM),38 the Court held that the statements in Manero and
Mambulao were mere obiter dicta, implying that the award of moral damages to corporations is
not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages to
corporations, it is not automatically granted; there must still be proof of the existence of the
factual basis of the damage and its causal relation to the defendant’s acts. This is so because
moral damages, though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.39
The spouses’ complaint against BPI proved to be unfounded, but it does not automatically entitle
BPI to moral damages. Although the institution of a clearly unfounded civil suit can at times be a
legal justification for an award of attorney's fees, such filing, however, has almost invariably
been held not to be a ground for an award of moral damages. The rationale for the rule is that the
law could not have meant to impose a penalty on the right to litigate. Otherwise, moral damages
must every time be awarded in favor of the prevailing defendant against an unsuccessful
plaintiff.40 BPI may have been inconvenienced by the suit, but we do not see how it could have
possibly suffered besmirched reputation on account of the single suit alone. Hence, the award of
moral damages should be deleted.
The awards of exemplary damages and attorney’s fees, however, are proper. Exemplary damages,
on the other hand, are imposed by way of example or correction for the public good, when the
party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner, while
attorney’s fees are allowed when exemplary damages are awarded and when the party to a suit is
compelled to incur expenses to protect his interest.41 The spouses instituted their complaint
against BPI notwithstanding the fact that they were the ones who failed to pay their obligations.
Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled
to the awards of exemplary damages and attorney’s fees.

Suarez vs. People (Criminal Liability)

In Ching, the Court had the occasion to discuss the liability of corporate officers for acts
committed by the corporation as follows:
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it
commands. A necessary part of the definition of every crime is the designation of the author of
the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of a
corporation or a crime and prescribes punishment therefor, it creates a criminal offense which,
otherwise, would not exist and such can be committed only by the corporation. But when a penal
statute does not expressly apply to corporations, it does not create an offense for which a
corporation may be punished. On the other hand, if the State, by statute, defines a crime that may
be committed by a corporation but prescribes the penalty therefor to be suffered by the officers,
directors, or employees of such corporation or other persons responsible for the offense, only
such individuals will suffer such penalty. Corporate officers or employees, through whose act,
default or omission the corporation commits a crime, are themselves individually guilty of the
crime.
The principle applies whether or not the crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves commit the crime and to those, who, by virtue
of their managerial positions or other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their relationship to the corporation, they had the
power to prevent the act. Moreover, all parties active in promoting a crime, whether agents or
not, are principals. Whether such officers or employees are benefited by their delictual acts is not
a touchstone of their criminal liability. Benefit is not an operative fact.[42]
In ABS-CBN v. Gozon (ABS-CBN),[43] the Court discussed that although corporate officers
may be held liable for a crime committed under the Intellectual Property Code, their criminal
liability stems from their active participation in the commission of the wrongful act. Hence, in
ABS-CBN, the Court affirmed the finding of probable cause against two of GMA's executives
for copyright infringement of ABS-CBN's news footage because of their position as Head of
News Operations and Program Manager. However, the Court excluded from the filing of
Information other GMA corporate officers because:
Mere membership of the Board or being President per se does not mean knowledge, approval,
and participation in the act alleged as criminal. There must be a showing of active participation,
not simply a constructive one.[44]
This same doctrine was reiterated in SEC v. Price Richardson Corporation[45] where the Court
stated that to be criminally liable for the acts of a corporation, there must be a showing that its
officers, directors, and shareholders actively participated in or had the power to prevent the
wrongful act.
In this case, petitioner's position as Executive Vice-President of 21st Century will not per se
make her liable for the failure of 21st Century to pay its tax liabilities. In the words of Section
253 of the NIRC, petitioner must have been the employee or officer responsible for the violation.