Sierra Electronics Inc. (SEI) has an outstanding capital stock consisting of 100 common shares and 100 non-voting preferred shares. The common shares are held by Filipino citizens while the preferred shares are held by foreigners. SEI planned to buy real property and establish a manufacturing plant in the Philippines. May the SEI own land in the Philippines? Explain.
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No, SEI may not own land in the Philippines. Under Article XII, Section 7 of the Constitution, in relation to Roy v. Herbosa and SEC Memorandum Circular No. 8, a corporation acquiring land must
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Quick check
Under Article XII, Section 7 of the Philippine Constitution, what minimum Filipino ownership percentage is required for a corporation to own land?
Article XII of the Constitution requires corporations acquiring land to be at least sixty percent Filipino-owned.
Under the ruling in Roy versus Herbosa, how is the sixty percent Filipino ownership requirement applied to corporate shareholdings?
Roy versus Herbosa established that the sixty percent requirement applies to both voting shares and total capital stock.
Under SEC Memorandum Circular No. 8, Series of 2013, can a corporation acquire land if Filipinos own 100% of voting shares but only 50% of total capital stock?
A corporation must satisfy the sixty percent threshold for both voting stock and total outstanding capital stock.
Which constitutional provision restricts private land ownership in the Philippines to Philippine nationals?
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What is the legal status of a land acquisition contract executed by a corporation that fails the constitutional Filipino equity requirement?
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Learn more about these topics
1. Foreign Land Ownership
Under Article XII, Section 7 of the 1987 Philippine Constitution, private lands may be transferred or conveyed only to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. Section 2 of Article XII further provides that corporations acquiring private or public land must be Philippine nationals, defined as entities at least sixty percent of whose capital is owned by Filipino citizens. Ownership of land by corporations exceeding the forty percent foreign equity limitation is unconstitutional and void ab initio.
2. Control Test Application
In Roy versus Herbosa, the Supreme Court held that the required sixty percent Filipino ownership rule applies separately to both the total number of outstanding shares entitled to vote in the election of directors and the total number of outstanding capital stock, whether voting or non-voting. To qualify as a Philippine national eligible to own land, Filipino citizens must own at least sixty percent of all voting shares and at least sixty percent of the total outstanding shares regardless of voting rights.
3. Capital Stock Test
Under SEC Memorandum Circular Number 8, Series of 2013, for purposes of determining compliance with constitutional and statutory foreign equity restrictions, corporate capital is evaluated under a two-pronged test. Both the voting stock and total outstanding capital stock must independently satisfy the mandatory sixty percent Filipino ownership threshold. A corporation whose common voting shares are completely owned by Filipinos but whose total capital stock is only fifty percent Filipino-owned fails the constitutional test and cannot acquire land.