I. Executive overview

Foreign investors can do business in the Philippines through several corporate and non-corporate vehicles. The most common are: (a) a Philippine corporation (including the One Person Corporation or OPC), (b) a domestic partnership, (c) a branch office or representative office of a foreign corporation, and (d) specialized registration regimes (e.g., PEZA/BOI/other investment promotion agencies). The decisive legal constraints typically come from (1) constitutional and statutory foreign ownership caps, including the widely discussed 60/40 rule; (2) the Foreign Investments Act (FIA) and its “Negative List” concept; (3) sectoral laws (e.g., banking, insurance, retail, utilities/infrastructure, land ownership); and (4) corporate law rules under the Revised Corporation Code (RCC), including capitalization and governance requirements.

This article focuses on three recurring practical questions:

What the 60/40 rule really means in Philippine law and how it is applied;
How OPCs fit into foreign ownership planning; and
How capitalization works (authorized capital, subscribed capital, paid-in capital, minimum capital in regulated sectors, and common structuring pitfalls).

II. Core legal framework (what governs foreign ownership)

A. The Constitution as the source of many caps

Foreign ownership restrictions in the Philippines often trace to the Constitution. The Constitution imposes limits in certain areas such as:

Land ownership (generally reserved to Filipino citizens and corporations that are at least 60% Filipino-owned);
Exploitation, development, and utilization of natural resources (generally limited to Filipino citizens and qualified corporations with at least 60% Filipino ownership, with some arrangements permitted by law);
Operation of “public utilities” and certain strategic industries (historically subject to the 60% Filipino ownership requirement, though the scope of what counts as a “public utility” has changed by statute);
Mass media (generally limited to Filipino citizens and corporations wholly Filipino-owned);
Advertising (traditionally capped at 70% Filipino ownership, i.e., up to 30% foreign).

These constitutional baselines are then implemented and supplemented by statutes and regulators.

B. The Foreign Investments Act and the “Negative List” approach

The FIA is central for structuring: its general policy is to allow foreign investment in most activities unless restricted by the Constitution, by statute, or by the Foreign Investment Negative List (FINL). The Negative List is conceptually divided into:

Activities reserved to Filipinos by the Constitution and specific laws; and
Activities where foreign ownership is limited because of national security, defense, public health, and similar reasons, or where the law requires Filipino participation.

Even where an activity is “open,” additional practical requirements may apply (e.g., licensing, professional regulations, local permits, and minimum capital thresholds for certain foreign entrants).

C. Sectoral statutes and regulators

In practice, the “real” rules depend on the industry. Examples:

Banking: licensing by the Bangko Sentral ng Pilipinas; foreign ownership rules and fit-and-proper standards.
Insurance: Insurance Commission; capitalization and licensing.
Retail Trade: special thresholds and rules for foreign retailers (and continuing regulatory oversight).
Utilities / infrastructure: franchise requirements, regulatory regimes, and ownership thresholds depending on whether the business is legally a “public utility” or not.
Education: often restricted or capped.
Mining and energy: specialized foreign participation rules.

Because these are industry-specific, corporate structuring begins with identifying which law classifies the business and whether it falls under a capped or reserved activity.

III. The “60/40 rule” in Philippine context

A. What “60/40” means

“60/40” is shorthand for the requirement that certain activities must be owned by at least 60% Filipino (and at most 40% foreign). This typically means:

At least 60% of the outstanding capital stock entitled to vote must be owned by Filipino citizens (or Filipino entities that themselves meet Filipino ownership requirements), and
Control and beneficial ownership must be genuinely Filipino where the law so requires, not merely nominal.

However, the phrase can mislead because not all sectors use the same measurement and the relevant measurement may differ depending on the law, the regulator, and jurisprudence.

B. Voting shares vs. economic interest

The classic application focuses on voting shares: if a corporation is engaging in an activity that requires Filipino ownership, foreigners may be limited to 40% of voting stock. But investors often try to separate economics from control through share classes:

Common shares (usually voting).
Preferred shares (can be non-voting, or voting on limited matters as provided by the RCC).

In a restricted sector, using non-voting preferred shares may increase a foreign investor’s economic participation only if the applicable law/regulator recognizes that the constitutional/statutory test is satisfied by Filipino control of voting stock. But many regimes scrutinize “economic rights” and “beneficial ownership” to prevent circumvention.

C. The “grandfather rule” and layered ownership

When a corporation is owned by other corporations, regulators and courts may “look through” layers to see whether ultimate beneficial ownership meets the Filipino threshold. A common concept used in Philippine practice is the grandfather rule, applied in some contexts (especially where there is doubt about Filipino control or where corporate layers are used).

In simplified form:

Under a strict “control test,” if a Philippine corporation is 60% owned by a Filipino corporation, it may be treated as Filipino.
Under a “grandfather” approach, you may have to compute the effective Filipino ownership by tracing ownership through each layer.

Because of this, putting a Philippine operating company under a holding chain can inadvertently make it “foreign” if upstream ownership fails the required Filipino threshold, even if the immediate shareholder is nominally Filipino-controlled.

D. Citizenship of corporations and who counts as “Filipino”

A corporation is “Philippine” (domestic) if incorporated under Philippine law. But for foreign ownership caps, what matters is often whether it is a Philippine national (i.e., at least 60% Filipino-owned). If a domestic corporation is more than 40% foreign-owned, it can be treated as foreign for purposes of activities reserved or limited to Filipinos.

E. Anti-dummy considerations (substance over form)

Philippine law penalizes arrangements where foreigners effectively control a business reserved to Filipinos by using “dummies” or nominee arrangements. Compliance is not only about percentages on paper but also about:

Actual control of management and voting;
Governance rights (vetoes, reserved matters);
Funding arrangements that transfer control;
Side agreements (e.g., options, assignments, voting trusts) that effectively give foreigners control beyond what is allowed.

For restricted activities, structuring must be designed so that Filipino equity is real, the Filipino shareholder bears real risk, and foreign investors do not obtain prohibited control through contracts.

IV. OPC (One Person Corporation) and foreign ownership

A. What an OPC is

An OPC is a corporation with a single stockholder, created under the Revised Corporation Code. It has a separate juridical personality distinct from the owner, limited liability in principle, and corporate continuity.

B. Who may form an OPC

As a rule, the single stockholder can be a natural person, trust, or estate. In practice and under implementing rules, a foreign individual can incorporate an OPC if the activity is not reserved to Filipinos and any sectoral or capital requirements are met. The OPC is not a loophole: if the business activity is subject to the 60/40 rule or is reserved, an OPC with a foreign single stockholder cannot legally engage in it.

C. OPC vs. ordinary corporation (key governance differences)

Single stockholder structure: No need for multiple incorporators.
Officers: The OPC must have specific officers; the single stockholder often acts as director and president, and appoints other officers as required by law/rules.
Corporate formalities: Still required—separate books, resolutions, audited financial statements where applicable, and compliance filings.
Nominee and alternate nominee: OPC rules commonly require designation of a nominee and alternate nominee to assume management upon death/incapacity of the single stockholder.

D. When OPC is particularly useful for foreign investors

Wholly foreign-owned businesses that are not in restricted sectors.
Professionalized limited liability vs. sole proprietorship.
Simplified ownership where the investor wants full control without local partners.

E. When OPC is not a good fit

Where the business requires Filipino ownership participation (60/40), because an OPC cannot have multiple owners to meet the threshold.
Where the investor needs a multi-investor cap table, employee equity, or complex classes of shares.
Where banks, counterparties, or regulators prefer conventional governance (this is practical rather than strictly legal).

F. OPC and the 60/40 rule

An OPC cannot itself comply with a 60/40 ownership requirement through its own equity structure because it has only one stockholder. Therefore:

If an activity requires at least 60% Filipino ownership, an OPC can only do it if the single stockholder is a Filipino citizen (or an allowable qualified single stockholder, depending on the activity and rules).
A foreign-owned OPC may still invest as a shareholder in another corporation, but if that target corporation is in a restricted sector, the foreign equity participation of the OPC counts as foreign ownership.

V. Capitalization in Philippine incorporation (and why it matters)

A. Core concepts

Authorized Capital Stock (ACS) The maximum amount of capital stock the corporation is authorized to issue, divided into shares with par value or without par value (subject to rules). The ACS is stated in the Articles of Incorporation.
Subscribed Capital The portion of the ACS that investors commit to take and pay for (whether fully paid or payable over time subject to calls and legal rules).
Paid-in Capital / Paid-up Capital The portion actually paid to the corporation. Proof of paid-in capital may be required by banks, regulators, or when opening accounts and applying for permits.
Outstanding Capital Stock Shares actually issued and held by stockholders (net of treasury shares).
Par value vs. no-par shares Par value shares have a minimum issue price equal to par; no-par shares have no stated par but must be issued for a consideration determined by the board and within legal limits.

B. The Revised Corporation Code changed the old “25%/25%” rule

Under the old Corporation Code, a common rule of thumb for stock corporations at incorporation was: at least 25% of authorized capital subscribed, and at least 25% of the total subscription paid-up. The Revised Corporation Code removed that across-the-board statutory minimum for most corporations (subject to specific SEC regulations and special laws). Practically, however:

The SEC may require certain paid-in capital proofs in particular cases;
Banks and counterparties often expect reasonable capitalization; and
Many sectoral laws still impose minimum capital.

C. Minimum capital requirements: general rule and common exceptions

General rule: For most ordinary domestic corporations doing ordinary trading/services not in regulated sectors, there is no universal minimum paid-in capital imposed by corporate law alone.

Common exceptions (high-level):

Foreign-owned domestic market enterprises may be subject to minimum paid-in capital thresholds under foreign investment rules, depending on whether the enterprise serves the domestic market and whether it falls within certain categories (e.g., export vs. domestic market, and sector classifications).
Retail trade, financing/lending, insurance, banking, construction, recruitment, contracting, and other regulated industries often have statutory or regulatory minimum paid-up capital or net worth requirements.
Investment promotion registrations (PEZA/BOI/others) may impose capitalization, investment amount, or employment commitments.

Because these exceptions are where deals fail in execution, capitalization planning should start with the industry’s licensing and foreign ownership regime, not with the corporate form.

D. Capitalization and foreign ownership are linked

In a 60/40 environment, capitalization becomes a compliance lever:

If the law measures compliance by outstanding voting shares, then the share class structure and issuance must preserve Filipino majority voting.
If the regulator scrutinizes beneficial ownership, then a foreign investor cannot simply inject almost all capital as “debt” or “preferred returns” while leaving Filipinos with nominal equity that bears no risk.
Capital calls, dilution provisions, and conversion features must be designed so that future issuances do not accidentally breach caps.

E. Common pitfalls

Issuing shares to foreigners that inadvertently exceed caps due to later capital increases or share transfers.
Layered ownership where an intermediate “Filipino” corporation later admits foreign investors, causing downstream non-compliance.
Share class features (veto rights, board appointment rights, protective provisions) that effectively transfer control in a way regulators treat as circumvention.
Using loans to mimic equity where the foreign lender gains de facto control in a restricted activity.
Under-capitalization that blocks licensing, bank account opening, or commercial contracting.

VI. Incorporation pathways for foreign investors: choosing the right vehicle

A. Domestic corporation (ordinary stock corporation)

Best when:

You need multiple investors;
You want local juridical personality for contracting, assets, licensing;
You may need Filipino shareholders for restricted sectors.

Foreign ownership can be up to 100% if the activity is open, subject to any special minimum capitalization or licensing rules.

B. OPC

Best when:

One ultimate owner wants a Philippine corporation;
Activity is open to foreign ownership;
Simplicity and control are key.

Not suitable for 60/40 structuring (unless the single owner is Filipino and the activity is reserved/limited).

C. Branch office of a foreign corporation

A branch is not a separate legal person from the head office, but it is licensed to do business in the Philippines and typically must meet assigned capital requirements and SEC registration rules. Best when:

The parent wants operational continuity and direct control;
The business is open and the parent prefers not to create a separate Philippine subsidiary.

A branch generally cannot engage in activities reserved to Filipino citizens or Filipino-owned entities.

D. Representative office / ROHQ / RHQ (where applicable)

These are limited-function vehicles (e.g., liaison, non-income generating representation, or regional support). They are not used for ordinary revenue-generating domestic business unless allowed by their specific regime.

E. Joint venture and contractual arrangements

Where foreign ownership is capped, a JV structure (corporate JV or project JV) is common. However, contractual control provisions must be carefully designed to avoid anti-dummy risk and regulatory reclassification.

VII. Mechanics of compliance in capped sectors (practical structuring principles)

A. Keep the cap table clean and auditable

Maintain clear records of citizenship for individual shareholders and ownership qualification for corporate shareholders.
Use transfer restrictions in the by-laws and shareholders’ agreements to prevent inadvertent breach (e.g., right of first refusal, nationality compliance clauses).

B. Board composition and control

Even if equity percentages comply, control may be scrutinized:

Board seats, quorum requirements, and veto rights must be consistent with allowed foreign participation.
“Reserved matters” should not amount to foreigners controlling day-to-day operations of a restricted business.

C. Share classifications (common/preferred) with care

Preferred shares can be used for economics, but:

In restricted sectors, confirm whether the regulator uses voting control tests, total outstanding capital tests, or a hybrid.
Avoid structures where foreigners receive essentially all upside with Filipinos holding nominal risk-free participation.

D. Funding: equity vs. debt

Foreign investors often want shareholder loans. These are generally lawful, but risk arises when:

Loan covenants effectively give the foreign lender operational control; or
The business is in a restricted sector and the loan arrangement becomes a disguised transfer of beneficial ownership/control.

E. Exit mechanisms

Options, put/call rights, and convertible instruments must be drafted to prevent automatic or forced transfers that would breach caps at exercise or conversion.

VIII. Special case: land and real estate considerations

A. Direct land ownership

Foreign individuals and foreign-owned corporations generally cannot own land (with limited exceptions under special laws and subject to strict conditions). A Philippine corporation can own land only if it is at least 60% Filipino-owned (and remains qualified over time).

B. Alternatives commonly used in practice

Long-term leases (often up to a statutory maximum term with renewal frameworks under Philippine law).
Condominium ownership subject to restrictions (foreign ownership allowed up to a certain percentage in a condominium project).
Build-operate or similar project structures depending on sector, with careful compliance to ownership and control rules.

Because land is often a primary asset, land qualification issues frequently drive 60/40 structuring decisions even when the operating business might otherwise be open.

IX. The SEC process and documentary realities (what incorporation actually requires)

A. Standard requirements for Philippine incorporation

Articles of Incorporation and By-Laws (or their equivalents under SEC templates);
Treasurer’s affidavit or proof of paid-in capital when required by SEC rules or needed for practical banking;
Identification documents and nationality proofs for shareholders and incorporators;
Beneficial ownership disclosures required under SEC regulations and anti-money laundering best practices.

B. Post-incorporation registrations

Incorporation is only the start. A foreign-owned entity typically also needs:

BIR registration and invoices/receipts authority;
Local business permits (mayor’s permit, barangay clearance);
Employer registrations (SSS, PhilHealth, Pag-IBIG) if hiring;
Sectoral licenses (as applicable).

For foreign-owned enterprises, banks and regulators frequently request enhanced due diligence documents (apostilled/incumbency certificates, board resolutions, UBO charts, and source-of-funds documentation).

X. Compliance checklist by topic

A. If your activity might be restricted

Identify whether the business is reserved/limited and under what statute.
Determine the applicable ownership test (voting shares, outstanding capital, beneficial ownership, “grandfather” look-through, or a hybrid).
Build a cap table that stays compliant after contemplated financings and transfers.
Draft governance and funding documents that do not transfer prohibited control.
Implement nationality compliance controls in by-laws and shareholder agreements.

B. If you plan to use an OPC

Confirm the activity is open to 100% foreign ownership (if foreign-owned).
Confirm any minimum capital rules for foreign participation.
Plan nominee/alternate nominee and officer appointments properly.
Maintain strict separation of corporate and personal dealings to protect limited liability.

C. If capitalization is uncertain

Check licensing and sectoral requirements first.
Align authorized capital and initial paid-in capital with business realities (leases, staff, equipment, permits).
Consider future fundraising and how it affects nationality thresholds.
Keep documentary proof of remittances and capital infusions for banking and audits.

XI. Key takeaways

The 60/40 rule is not a universal rule for all industries; it applies where the Constitution or a statute imposes it, and the measurement may differ by context.
OPCs are a powerful vehicle for single-owner operations, including foreign-owned entities, but they are not a workaround for Filipino ownership requirements.
Capitalization is both a legal and practical issue: even when corporate law does not impose a blanket minimum, regulators, banks, and industry statutes often do.
The safest approach is to treat ownership compliance as an ongoing obligation—cap tables, funding, governance rights, and transfers must be designed so the company remains qualified over time.