Foreign board seats capped at equity in Philippine businesses.
Foreign investors in a partly nationalised Philippine enterprise may sit on its board, but only in proportion to their allowable equity interest. This board representation limit is separate from the ownership threshold and applies where the enterprise is subject to a constitutional or statutory requirement for at least 60% Filipino ownership. Businesses that overlook it risk a board structure that does not match their permitted ownership structure, potentially creating exposure under the Anti-Dummy Law.
Board seats under the Anti-Dummy Law
The board representation requirement is set out in Section 2-A of the Anti-Dummy Law (Commonwealth Act No. 108, as amended by Presidential Decree No. 715). Where an enterprise is subject to a 60% Filipino ownership requirement, a foreign investor holding 40% of the qualifying capital, for example, may hold no more than 40% of the board seats, regardless of any separate agreement among shareholders.
The law also distinguishes board membership from participation in management. Foreign nationals may serve as directors within their proportionate share, but cannot intervene in the management, operation, administration or control of the enterprise, including by serving in management roles such as president, treasurer or general manager, unless an applicable exception applies. Technical personnel may be employed where their employment has been specifically authorised.
Implications for structuring the board
Board composition should be considered alongside the capital structure from the outset rather than adjusted later. The articles of incorporation, by-laws and any shareholders’ agreement should reflect the applicable proportionality rule, while management roles should be assigned in accordance with the Anti-Dummy Law, with foreign nationals restricted from intervening in management unless an applicable exception for specifically authorised technical personnel applies. Addressing these requirements when structuring the investment can help reduce potential compliance risks.
