Sec. 11, Art. XII of the Constitution, provides: “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 xx x.” Does the term “capital” mentioned in the cited section refer to the total common shares only, or to the total outstanding capital stock, or to both or “separately to each class of shares, whether common, preferred non-voting, preferred voting or any class of shares?” Explain your answer. (5%)
Suggested answer only. Not an official answer and not legal advice.
The term "capital" refers to shares entitled to vote in director elections, and the 60% Filipino ownership rule applies to both total voting shares and total outstanding capital stock.
Under Article XII, Section 11 of the Constitution and Gamboa v. Teves, "capital" means shares entitled to vote. Under Roy v. Herbosa, the 60% requirement applies to both (a) voting shares entitled to elect directors, and (b) total outstanding shares, whether voting or not.
Here, applying 60% ownership solely to common shares or total stock fails to ensure Filipino control. Full beneficial ownership and voting control must reside in Filipino citizens across both voting shares and total capital stock.
Therefore, "capital" requires 60% Filipino ownership applied to both voting shares and total outstanding capital stock.
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Quick check
What does the term 'capital' in Article XII, Section 11 of the Constitution refer to under Gamboa v. Teves?
Under Gamboa v. Teves, capital refers strictly to shares of stock entitled to vote in the election of directors.
Under Roy v. Herbosa, how must the 60% Filipino ownership requirement be applied to public utility corporations?
Roy v. Herbosa affirmed that the 60% requirement applies separately to total voting shares and total outstanding capital stock.
Which administrative issuance promulgated the dual 60% rule for public utility corporate capital compliance?
SEC Memorandum Circular No. 8, Series of 2013 codified the dual 60% rule mandated by Supreme Court jurisprudence.
Why is applying the 60% Filipino requirement solely to total outstanding capital stock insufficient under constitutional law?
Applying the threshold solely to total stock allows foreigners to control the corporation by acquiring majority voting shares.
What twin elements must concur to satisfy the constitutional requirement of 60% Filipino capital ownership?
Constitutional compliance requires both voting control and full beneficial ownership to reside in Filipino citizens.
Learn more about these topics
1. Meaning Of Capital
Under Article XII, Section 11 of the 1987 Constitution, public utility franchises are reserved exclusively for Philippine citizens or corporations at least sixty percent of whose capital is Filipino-owned. In Gamboa v. Teves, the Supreme Court defined 'capital' as referring strictly to shares of stock entitled to vote in the election of directors. Full beneficial ownership and voting control must reside in Filipino citizens. Treating non-voting preference shares or total aggregate stock as the sole benchmark for compliance allows foreign investors to exert effective control, thereby frustrating the constitutional mandate to nationalize public utility management.
2. Dual Voting Rule
In Roy v. Herbosa, the Supreme Court clarified the application of the constitutional nationality requirement by establishing the dual sixty percent rule. Under SEC Memorandum Circular No. 8, Series of 2013, the sixty percent Filipino ownership requirement applies separately to two distinct categories: first, to the total number of outstanding shares entitled to vote in the election of directors; and second, to the total number of outstanding capital stock, whether voting or non-voting. Applying the threshold to both voting shares and total stock guarantees that effective voting control and major economic benefits remain in Filipino hands.
3. Beneficial Ownership Concept
The constitutional requirement of sixty percent Filipino capital ownership mandates both legal title and full beneficial ownership. Beneficial ownership requires that Filipinos exercise voting rights, receive dividends, and hold ultimate control over the corporate shares. Legal structures, nominee arrangements, or voting trust agreements that separate legal title from beneficial ownership to circumvent the sixty percent threshold are unconstitutional. SEC regulations enforce strict compliance by looking beyond superficial share distribution to ensure that Filipino stockholders retain majority voting power and substantial equity interest in public utility corporations.