ii. Grandfather Rule

Grandfather Rule

Where corporate shareholders are present (and when the Filipino-foreign equity ownership is in doubt), the percentage of the Filipino equity in corporations is computed by attributing the nationality of the second or subsequent tier of ownership to determine the nationality of the corporate shareholder

Example: MV Corporation and AC Corporation have equal interest in XYZ Company. MV Corporation is 60% owned by Filipinos, while AC Corporation is 50% owned by Filipinos. By the grandfather rule, MV Corporation would have a 30% Filipino interest in XYZ Company (60% of 50%), while AC Corporation would have a 25% Filipino interest in XYZ Company (50% of 50%). Hence, the total Filipino interest is only 55%.

The Control test is still the prevailing mode of determining whether or not a corporation is a Filipino corporation within the ambit of the natural resources provisions of the Constitution. But when in the mind of the court there is doubt based on attendant facts and circumstances, in the 60- 40 Filipino equity ownership in the corporation, then it may apply the grandfather rule (Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, 2014).

The “grandfather rule” does not eschew, but in fact supplements the “control test”, as the latter implements Filipinization provisions of the Constitution. (Narra Nickel Mining and Development Corp v. Redmont Consolidated Mines Corp, G.R. No. 195580, 28 January 2015)¹.

Double 60% Rule

Where a corporation and its non-Filipino stockholders own stock in a SEC-registered enterprise, at least 60% of the outstanding capital stock and entitled to vote of both corporations and at least 60% of the members of the Board of Directors of both corporations must be Filipino citizens (R.A. No. 7042, Sec. 3[a], as amended)²