FLIP Co. is engaged in a nationalized activity requiring at least 60% Filipinoownership. Its outstanding capital stock consists of 1,000,000 shares broken down into 400,000 non-voting preferred shares and 600,000 voting common shares out of which 20,000 are treasury shares. How many shares of the corporation must be owned by Filipinos? Explain briefly. (5 points)
Suggested answer only. Not an official answer and not legal advice.
Filipinos must own at least 348,000 voting common shares and at least 588,000 total outstanding shares of FLIP Co..
Under Section 11, Article XII of the Constitution and Roy v. Herbosa, the 60% Filipino requirement applies to BOTH (a) total outstanding voting shares, and (b) total outstanding capital stock, whether voting or non-voting. Treasury shares are excluded from outstanding capital stock.
Here, excluding 20,000 treasury shares leaves 580,000 voting common shares and 400,000 non-voting preferred shares, totaling 980,000 outstanding shares. Thus, Filipinos must own at least 348,000 voting common shares (60% of 580,000) and at least 588,000 total shares (60% of 980,000).
Therefore, Filipinos must hold at least 348,000 voting common shares and a total of 588,000 shares across all outstanding capital stock.
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Quick check
Under Roy versus Herbosa, how is the sixty percent Filipino ownership requirement applied to nationalized corporations?
Roy versus Herbosa held that the sixty percent Filipino requirement applies to both voting shares and total outstanding capital stock.
Under Section 9 of the Revised Corporation Code, what is the legal status of treasury shares regarding voting rights?
Treasury shares are reacquired shares excluded from outstanding capital stock that carry no voting rights.
Out of 600,000 total voting shares with 20,000 held as treasury shares, how many voting shares must Filipinos own to satisfy the 60% requirement?
Excluding 20,000 treasury shares leaves 580,000 voting shares, sixty percent of which is 348,000 shares.
If a corporation has 580,000 outstanding voting shares and 400,000 outstanding non-voting shares, what is the total outstanding capital stock?
Total outstanding capital stock excludes treasury shares, resulting in 980,000 total outstanding shares.
How many total outstanding shares must Filipinos hold in a corporation with 980,000 total outstanding shares to meet a 60% requirement?
Sixty percent of 980,000 total outstanding capital stock equals 588,000 total shares.
Learn more about these topics
1. Grandfather Rule Application
Under Section 11, Article XII of the 1987 Philippine Constitution and Roy versus Herbosa, nationalized activities requiring minimum Filipino ownership must strictly comply with the Grandfather Rule and Control Test. The sixty percent Filipino ownership threshold applies separately and double-layered to both the total number of outstanding voting shares entitled to vote for directors and the total number of outstanding capital stock, whether voting or non-voting. Corporations engaged in partially nationalized industries must satisfy this dual voting and total equity test at all times.
2. Treasury Shares Exclusion
Under Section 9 of the Revised Corporation Code (Republic Act Number 11232), treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, or other lawful means. Treasury shares have no voting rights and receive no dividends. Consequently, treasury shares are excluded from the computation of total outstanding capital stock when determining compliance with constitutional foreign equity restrictions and Filipino ownership requirements.
3. Sixty Percent Rule
In Roy versus Herbosa, the Supreme Court affirmed Securities and Exchange Commission Memorandum Circular Number 8, Series of 2013, establishing the dual requirement for nationalized corporations. The statutory sixty percent Filipino ownership threshold must be applied independently to both the total class of outstanding voting shares and the total outstanding capital stock regardless of voting classification. Failure to satisfy either branch of the dual sixty percent test results in non-compliance with constitutional foreign ownership ceilings.