I. Why this topic matters

Foreign participation in Philippine corporations is often discussed in terms of share ownership, but in practice, many compliance problems arise from board composition and “control”—especially where the business operates in a partially or fully nationalized activity (e.g., public utilities, landholding, natural resources, mass media, education, advertising).

The Revised Corporation Code (“RCC”) generally allows foreigners to sit as directors, but other laws and constitutional limits can restrict how many foreign directors you may have, what roles they may occupy, and whether their involvement could be deemed unlawful “control.”

II. Core rule under the Revised Corporation Code: foreigners are generally eligible

A. Directors must be natural persons

Under the RCC, a “director” is generally a natural person elected to the board. In ordinary domestic corporations, the law contemplates human directors, not corporate entities.

B. Minimum share ownership requirement (stock corporations)

For stock corporations, each director must own at least one (1) share registered in the director’s name (unless the RCC or SEC rules provide a specific exception for certain structures). Practical impact for foreign directors: they must be legally allowed to own that share—usually not a problem in ordinary corporations, but it can be sensitive in corporations involved in nationalized activities, where the foreign ownership percentage is capped.

C. Majority residency requirement (citizenship is not the same as residency)

A key RCC rule: a majority of the board must be “residents” of the Philippines. This is a residency requirement—not a citizenship requirement. A foreign national may qualify as a resident if they genuinely reside in the Philippines, but a foreign national who resides abroad will not.

Implication: even if a business is not nationalized, you can run into an RCC technical violation if too many directors are non-residents.

D. Disqualifications apply equally to foreign and Filipino directors

Foreign nationals are subject to the same director disqualifications as everyone else, including typical grounds such as:

convictions involving fraud or similar offenses (often within a look-back period),
administrative findings relating to corporate violations,
and other statutory disqualifications under the RCC and special laws.

III. The big qualifier: foreign investment and “nationalized activity” rules can override the RCC default

The RCC tells you who may serve as a director in general. But once your corporation touches a restricted or partially restricted sector, you must also comply with:

The Philippine Constitution (nationalization provisions),
The Foreign Investments Act (FIA) and its Negative List system (where applicable),
special industry laws and regulators (e.g., banking, insurance, public utilities/public services, education, telecom/transport rules, etc.),
the Anti-Dummy Law (criminal and regulatory risk when foreigners exercise prohibited control).

These restrictions can affect:

foreign ownership percentage, and
foreign representation in the governing body (the board), and
whether foreigners may serve as executive/managing officers.

IV. Constitutional “governing body” limits: the rule that often decides board seats

For certain constitutionally restricted activities, the Constitution uses a “governing body proportion” concept:

A. Public utilities (classic constitutional rule)

Where the Constitution requires at least 60% Filipino ownership, it also limits foreign participation in the governing body to their proportionate share in capital.

Operational meaning (typical application):

If foreigners own 40% of the outstanding capital, foreign representation on the board should not exceed 40% of board seats.

Example (common board sizes):

5 directors: 40% of 5 = 2 seats (since 2/5 = 40%)
7 directors: 40% of 7 = 2 seats (2/7 ≈ 28.6%), possibly 3 seats (3/7 ≈ 42.9%) may exceed proportionate share depending on the exact rule applied by regulators; many corporations choose the conservative route.
9 directors: 40% of 9 = 3 seats (3/9 = 33.3%); 4 seats (44.4%) may be viewed as exceeding.

Note: Board-seat math is not just arithmetic; regulators look at actual control and may apply conservative interpretations to avoid giving foreigners effective control.

B. Advertising and other similarly worded provisions

Some constitutional provisions use a similar approach (foreign participation limited to proportionate share) and may also require that executive/managing officers be Filipino citizens.

C. “Control and administration must be vested in citizens”

In some sectors (notably education), the Constitution speaks in terms of control and administration being vested in citizens. In practice, this typically means:

board and top management must be structured so that Filipinos control corporate decisions, not merely hold the “right” percentage of shares on paper.

V. Foreign Investments Act (FIA): ownership classification affects what your board can look like

A. Key classifications

Philippine national (generally: at least 60% Filipino-owned)
Foreign-owned domestic corporation (commonly: more than 40% foreign equity)
Doing business concepts (relevant for foreign entities and branches, but also informs compliance posture)

B. Negative List and sectoral caps

The FIA framework works with the Foreign Investment Negative List (FINL), special laws, and constitutional provisions. Where an activity is capped (e.g., 40% foreign equity), the board must also be consistent with:

the constitutional governing-body limits (where applicable),
and any industry-specific “Filipino control” standards.

VI. Special restrictions that frequently affect foreign directors and officers

A. Mass media (high restriction)

Mass media is constitutionally restricted in a way that is commonly understood as fully reserved (i.e., foreign ownership is generally not allowed). If foreigners cannot own equity, they also cannot be directors in a qualifying mass media entity because directors in stock corporations must own at least one share and because the activity is reserved.

B. Landholding corporations

Only corporations that qualify as Philippine nationals may own land. A foreign director is not automatically prohibited, but the corporation must remain a Philippine national and must not be structured so that foreigners exercise prohibited control over landholding.

Common risk pattern: “60/40” on paper but foreign control through board dominance, veto rights, or management arrangements—this can create validity and enforcement risks, including challenges to land ownership.

C. Natural resources and exploitation

These areas are typically subject to constitutional and statutory limitations. Even where foreign participation is allowed through particular mechanisms (e.g., agreements), board and management control must be structured so that the corporation remains compliant with nationality and control requirements.

D. Public utilities / public services (reform-sensitive area)

Philippine law distinguishes between “public utility” (constitutional nationality restriction historically applies) and broader “public service” (some segments have been liberalized by statute). Even with liberalization in some sectors, board composition must still comply with:

the applicable constitutional bucket (if it remains a “public utility”),
special laws/regulators,
and national security/critical infrastructure rules where relevant.

E. Regulated financial institutions

Banks, insurance companies, and similar entities are heavily regulated. Even when foreign equity is allowed, regulators often impose:

fit-and-proper standards,
board composition requirements (including independent directors),
nationality/residency constraints for certain key roles.

VII. The Anti-Dummy Law: the “control” trap (and why board seats can create criminal exposure)

Even if foreign share ownership and board seats look compliant on paper, you must avoid arrangements where foreigners actually control a business reserved wholly or partly for Filipinos.

A. What triggers risk

Common red flags include:

foreigners acting as de facto managing officers in nationalized activities where executive/managing officers must be Filipinos,
side agreements giving foreigners decision-making power beyond their equity share,
loan/security or “management services” arrangements that effectively transfer control,
Filipino directors/officers serving only as figureheads (“dummies”).

B. Why directors matter here

Directors are where corporate power lives. If foreigners occupy board seats in a way that:

defeats the “proportionate governing body” limit, or
undermines “Filipino control and administration,” then the structure can be attacked as a dummy arrangement even if the share registry looks correct.

VIII. The “Philippine national” tests: board planning must track nationality determination

For nationalized activities, it’s not enough to label shareholders as Filipino; you must apply nationality determination rules that regulators use, typically including:

A. Control test (baseline)

A corporation is generally treated as Philippine national if at least 60% of its outstanding capital is owned by Filipino citizens (or qualifying Philippine nationals).

B. Grandfather rule (when applied)

In some situations—especially where there are layers of corporate ownership and doubt about compliance—regulators may apply more detailed tracing (“grandfathering”) to verify whether the 60% Filipino ownership is real all the way up the chain.

Practical impact on directors: if your corporation is later found to be “more foreign” than declared, then foreign directors may become part of a broader compliance failure (including loss of authority to own land or operate a nationalized business).

IX. Practical compliance checklist: appointing a foreign national as director

Step 1: Identify whether the business is in a restricted sector

Ask: Does the corporation engage (directly or indirectly) in any activity subject to:

constitutional nationality caps,
the Negative List,
special industry laws,
licensing/franchise conditions?

Step 2: Confirm foreign equity percentage and allowed board representation

If the activity is partially nationalized and uses the “proportionate governing body” rule:

compute the maximum foreign board seats consistent with foreign equity,
structure board size accordingly (sometimes increasing board size makes proportional compliance easier).

Step 3: Check RCC eligibility items

director is a natural person
owns at least one share (stock corp)
board as a whole satisfies majority residency
no disqualification

Step 4: Separate “director” from “executive/managing officer”

A foreigner may sometimes sit as a director but be barred from serving as:

president,
general manager,
treasurer/controller with policy-making power,
or other roles deemed “executive or managing” in nationalized sectors.

Step 5: Align corporate documents and actual practice

Articles/bylaws should not create foreign veto rights or control mechanisms inconsistent with nationality rules.
Board committees and quorum/approval thresholds should not allow foreigners to effectively control outcomes in nationalized businesses.

Step 6: Immigration and work-authority hygiene

Being elected director is not automatically “employment,” but if the foreign director is:

actively managing day-to-day operations,
signing as an officer,
rendering services locally, they may need appropriate immigration/work authority depending on the arrangement.

X. Common board-structure strategies (lawful if done right)

Match board seats to equity (e.g., 60/40 ownership → board seats that do not exceed proportionate foreign participation).
Use Filipino control mechanisms that are genuine (Filipino majority that truly deliberates and decides).
Avoid “supermajority” provisions that give foreign minority a veto in areas that effectively amount to control of a nationalized line of business.
Ring-fence nationalized activities (separate entities/subsidiaries) to prevent compliance spillover.

XI. Frequently asked questions

1) Can a foreign national be a director of a Philippine corporation?

Yes, as a general rule under the RCC, provided they meet the standard qualifications (natural person, share ownership for stock corporations, no disqualifications), and the board meets the majority residency requirement. But in restricted industries, the answer becomes: “Yes, but only within the limits of the Constitution, FIA/Negative List, special laws, and the Anti-Dummy Law.”

2) Can foreigners be a majority of the board if foreigners are minority shareholders?

In nationalized sectors with “proportionate governing body” limits, no. Even outside those sectors, you still must meet the RCC majority residency requirement (and other regulators may require governance structures that prevent foreign control).

3) Can a foreign director be president or general manager?

In many nationalized sectors, executive and managing officers must be Filipino citizens. Even when not expressly required, allowing a foreign director to operate as the de facto manager can create Anti-Dummy Law risk if the business is reserved/partially reserved.

4) If the corporation is 60% Filipino-owned, does that automatically mean it’s compliant?

Not always. Regulators can examine:

layered ownership (including possible “grandfathering”),
beneficial ownership and control arrangements,
actual governance and decision-making practice.

XII. Bottom line

RCC default: Foreign nationals can generally serve as directors if they meet standard qualifications and the board meets majority residency.
But if the corporation engages in restricted or partially restricted activities, foreign directors are limited by:
- constitutional “governing body proportion” rules,
- “Filipino control and administration” requirements,
- special statutes and regulators,
- and Anti-Dummy Law exposure if foreigners exercise prohibited control.

If you want, I can also provide:

sample board-seat matrices for common ownership splits (e.g., 60/40, 70/30),
model bylaw provisions that avoid “control” pitfalls,
and a due diligence checklist for foreign director appointments in nationalized industries.