The Anti-Dummy Law and Nominee Shareholders in the Philippines

By Jot Jacosalem · Roll No. PENDING · IBP PENDING
Last updated September 7, 2026

If a Filipino holds shares on your behalf in a Philippine company that operates in an activity reserved by law to Philippine nationals, you are inside the Anti-Dummy Law. This page explains when the statute applies, what it prohibits, what it costs, what foreign nationals are actually allowed to do, and what changed on 1 January 2026.

When the law applies at all

Commonwealth Act No. 108, the Anti-Dummy Law, opens with a condition that is often skipped. Section 1 begins: in all cases in which any constitutional or legal provision requires Philippine or any other specific citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege.

That condition does real work. If the activity carries no nationality requirement, a nominee arrangement is not an Anti-Dummy violation. It may still be a disclosure violation, a tax problem and a contractual mess, and the sections below on beneficial ownership disclosure apply to every registered entity regardless of sector. But the criminal statute needs a reserved right to attach to.

The first question in any nominee case is therefore not who owns the shares. It is whether the company’s activity appears in the Foreign Investment Negative List or in a sector-specific nationality law, and whether it did so at the relevant time.

What the law prohibits

Within that condition, CA 108 makes it a crime for a Filipino to lend his name or citizenship so that a foreign national can hold or enjoy a right reserved to Philippine nationals, and for the foreign national who profits from that arrangement.

The ownership rule it enforces sits in the implementing rules of the Foreign Investments Act. For stock to count toward the required Filipino equity, mere legal title is not enough. Full beneficial ownership of the stock, coupled with appropriate voting rights, is essential, and stock whose voting rights have been assigned or transferred to aliens cannot be treated as held by Philippine nationals. That language survives in the current implementing rules, as amended following Republic Act No. 11647.

A nominee arrangement fails that test even when the shareholder register reads 60/40. The law asks who really owns and controls the shares, not whose name appears on the certificate.

The arrangements that create exposure

Enforcement complaints and the small body of reported cases cluster around a few patterns. Each of them assumes the activity is reserved.

Nominee shareholding

A Filipino appears on the register as owner of shares that the foreign investor paid for and controls, usually supported by a deed of trust and an undated deed of assignment held by the investor. Section 1 of the statute covers this directly. It also carries an evidentiary rule that catches most such structures: if the nominee had no real or personal property, credit or other assets at least equivalent to his holdings at the time he acquired them, that is evidence of a violation.

Simulated capital

The articles of incorporation and the general information sheet show Filipino subscription that did not actually happen. Section 2 punishes the president or managers and directors or trustees of the corporation for falsely simulating the minimum capital stock.

Foreign operational control

The equity is genuinely compliant and the foreign national runs the company anyway, frequently under a title such as adviser, consultant or technical specialist. Section 2-A reaches this even where no share is misheld, because it prohibits permitting a disqualified person to intervene in the management, operation, administration or control of the enterprise, whether as officer, employee or laborer, and whether or not he is paid.

Layering

Holding companies stacked so the Control Test is satisfied at each level while beneficial ownership sits abroad. See the section below on when the Grandfather Rule applies.

The provision nobody mentions

Section 2-C, inserted by Republic Act No. 6084 in 1969, provides that the exercise, possession or control by a Filipino citizen having a common-law relationship with an alien, of a right, privilege, property or business reserved by the Constitution or the laws to citizens of the Philippines, is prima facie evidence of a violation of Section 2-A.

The practical reach of that provision is wider than the nominee cases. It shifts the evidentiary burden onto the couple, and it applies to property and business interests held in the Filipino partner’s name, whether or not anyone drafted a trust deed.

What the penalty actually is

Several widely read summaries of the Anti-Dummy Law still quote 2 to 10 years and a fine of ₱2,000 to ₱10,000. Those are the figures from the original 1936 text. Republic Act No. 134 replaced them on 14 June 1947.

Both sides are liable. The statute reaches the Filipino who lends his name and the foreign national who benefits from it. Where a corporation, association or partnership is the violator, Section 2-A makes its president, managers or persons in charge criminally liable in its place.

The provision that changes the risk calculation

Section 3-A gives an informer 25% of any fine imposed. It also provides that a dummy who voluntarily takes the initiative of reporting the arrangement and assists in the prosecution receives a reward equal to 25% of the fine actually paid, and is exempt from the penal liabilities provided in the Act.

The practical consequence is worth stating plainly. In a nominee structure, the Filipino holding the shares has a financial incentive to report the arrangement and a statutory route out of his own criminal liability for doing so. The security a foreign investor believes he has bought with a deed of trust runs one way only.

What foreign nationals are allowed to do

Two lawful routes exist, and both are narrower than they are usually described.

Board seats, in proportion

Presidential Decree No. 715 amended Section 2-A on 28 May 1975 to permit the election of aliens to the board of directors or governing body of a corporation engaged in a partly nationalised activity, in proportion to their allowable participation or share in the capital.

A foreign shareholder holding 40% in a 60/40 activity may therefore hold 40% of the board seats. This is a real entitlement and it is frequently given away by advisers who tell foreign clients that they cannot be involved at board level at all.

Employment and executive roles remain closed

The board proviso does not open officer or employee positions. Section 2-A continues to prohibit a foreign national from intervening in management, operation, administration or control as an officer, employee or laborer.

The Supreme Court applied this in Luzon Stevedoring Corporation v. Anti-Dummy Board, G.R. No. L-26094 (18 August 1972), which reached the Court on appeal from a ruling that a public utility corporation was prohibited from keeping certain aliens in its employ under Section 16(a) of the Public Service Act read with Section 2-A. It followed Macario King v. Hernaez, G.R. No. L-14859 (31 March 1962), which had reached the same conclusion for retail trade, holding that aliens could not be employed in a retail establishment in any capacity, control or non-control, except technical personnel then requiring the President’s authority.

Technical personnel, by specific authority of the Secretary of Justice

Section 2-A excepts technical personnel whose employment has been specifically authorised by the Secretary of Justice. Three features of that exception are routinely missed.

• The authorisation is specific and obtained in advance. It is not a determination the company makes for itself.
• It comes from the Department of Justice. An Alien Employment Permit from the Department of Labor and Employment is a separate requirement and does not substitute for it.
• Calling a role technical does not make it technical. In the Mactan-Cebu airport case, prosecutors alleged in 2021 that foreign nationals acted as executive officers, managers and employees of the concessionaire in the guise of being advisers, experts and technical personnel.

How Filipino ownership is computed

The Control Test, and the two-tier calculation

A corporation is a Philippine national where at least 60% of its capital is Filipino-owned. The Control Test remains the prevailing mode of determining Filipino nationality.

The 60% is applied twice, not once. Under SEC Memorandum Circular No. 8, series of 2013, the required percentage of Filipino ownership is applied to both the total outstanding shares of stock entitled to vote in the election of directors, and the total outstanding shares of stock whether or not entitled to vote.

The Supreme Court upheld that circular in Roy III v. Herbosa, G.R. No. 207246 (22 November 2016), and denied reconsideration with finality on 18 April 2017. The Court rejected the argument that the 60-40 requirement must be applied separately to each class of shares, holding that the dispositive portion of the Gamboa Decision must control over the passage in the Gamboa Resolution suggesting otherwise, which it treated as obiter dictum.

What beneficial ownership means for this purpose

The same decision supplies the working test. Adopting the definition in the implementing rules of the Securities Regulation Code, the Court asked, for each specific stock, whether the Filipino has voting power over it, meaning he can vote it or direct another to vote it, or investment power, meaning he can dispose of it or direct its disposition, or both. If he has neither, the stock is not counted toward the 60%.

Run a standard nominee package through that test. The nominee votes as instructed under a deed of trust, and cannot dispose of the shares because an undated deed of assignment sits in the investor’s file. He has neither voting power nor investment power in any real sense. The shares fail the test on their own terms, before anyone reaches the Grandfather Rule.

The Grandfather Rule, and what triggers it

Where doubt exists as to whether the Filipino equity is genuine, the Grandfather Rule traces shareholdings up through the corporate layers toward the natural persons who ultimately own and control them.

In Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580 (Decision, 21 April 2014; Resolution, 28 January 2015), the Court found the necessary doubt where the foreign investor had supplied practically all the subscription funds, managed operations or supplied the technical resources, and prepared the economic studies. Traced through, Filipino participation in Narra came to 39.64%, and in each of the two co-petitioners to 40.01%. All three fell below the threshold.

The doubt is triggered by conduct, not by the cap table. A structure that computes correctly on paper will still be grandfathered if the surrounding facts suggest the Filipino equity is nominal.

What changed on 1 January 2026

The Securities and Exchange Commission issued Memorandum Circular No. 15, series of 2025, the Revised Beneficial Ownership Disclosure Rules, on 22 December 2025. The rules took effect on 1 January 2026 and apply to domestic stock and non-stock corporations, partnerships, one-person corporations, and foreign corporations including branch and representative offices, together with their incorporators, directors, trustees, officers and shareholders.

Six features matter for a nominee arrangement.

1. Only natural persons are recognised as beneficial owners. A corporate layer does not end the enquiry, and tiered and cross-border structures have their own rules.
2. The reporting threshold dropped from 25% to 20%. Category A now captures any natural person holding, directly or indirectly or through a chain of ownership, at least 20% of the voting rights, voting shares or capital.
3. A person acting solely as agent, nominee or trustee for another who qualifies as a beneficial owner is not himself the beneficial owner. Declaring the nominee is not compliance. Category G identifies the natural persons who actually own or control the entity through nominee shareholders or nominee directors as the beneficial owners.
4. Nominee arrangements must be disclosed, including the identity and details of the nominator, whether an individual, corporation or trust. This applies to existing corporations, not only to new ones.
5. Bearer shares are prohibited, share transfers must be recorded in the stock and transfer book within 30 days, and unrecorded transfers are not binding on the corporation. Dividends are payable to recorded owners.
6. Responsibility is assigned to a named person: the Corporate Secretary for domestic corporations, the Resident Agent for foreign corporations, and the single stockholder, trustee or executor for a one-person corporation.

Filing is through the Commission’s beneficial ownership registry, now the Hierarchical and Applicable Relations and Beneficial Ownership Registry: at incorporation or registration for new entities, with the next general information sheet for existing entities, and within seven calendar days of any change.

Penalties under the disclosure rules

A submission that lacks the required beneficial ownership information, and every instance of non-submission or late submission resulting from a failure of diligence, is prima facie evidence that the directors, trustees or officers breached the duty imposed on them.

These sit on top of the Anti-Dummy Law penalties above. They are not alternatives to them, and unlike the Anti-Dummy Law they do not depend on the company operating in a reserved sector.

The disclosure obligation now attaches at incorporation

This part is analysis rather than settled law, and it is offered as such.

In People v. Quasha, G.R. No. L-6055 (12 June 1953), a lawyer prepared articles of incorporation for a domestic common carrier showing a Filipino subscriber holding 60.005% of the shares when the funds were American. He was convicted of falsification. The Supreme Court reversed and acquitted him, reasoning that the law then in force did not require disclosure of the trustee arrangement at the incorporation stage, and that the 60% requirement for a public utility applies when the corporation seeks a franchise or authority to operate rather than when it is formed.

The gap that produced that acquittal has narrowed. Under the 2026 rules, beneficial ownership information is filed at incorporation or registration, and nominee arrangements must be disclosed together with the identity of the nominator. The legal duty of disclosure whose absence Quasha relied on now exists, at the same stage, and a false declaration carries its own penalty independent of the Anti-Dummy Law.

Two limits on that argument should be stated. A memorandum circular cannot create a crime, and the Anti-Dummy Law itself has not been amended. What the circular supplies is the element Quasha found missing, which is a legal obligation to disclose, and a separate administrative sanction for getting it wrong. How far a court would carry that has not been tested.

What can be said without qualification is that a structure formed today generates a filed, dated, government-held record of the very arrangement that a 1953 defendant was not obliged to disclose.

Two whistleblower routes now point at the same structure

Section 3-A of the Anti-Dummy Law provides the informer’s reward and the exemption described above. The 2026 disclosure rules separately provide whistleblower protections and incentives for reporting disclosure violations.

A Filipino nominee therefore has two independent avenues, one of which carries a statutory exemption from his own liability.

If you already have this structure

Nominee arrangements were widely used in Philippine companies over the last two decades, often set up on advice from advisers who were not lawyers. If that describes your company, four points follow from the sections above.

Check the sector first. Everything under the Anti-Dummy Law depends on whether your activity was and is reserved. That question has moved. Executive Order No. 113 promulgated the 13th Regular Foreign Investment Negative List, signed on 13 April 2026 and effective 2 May 2026, and Republic Act No. 11659 reclassified a range of activities out of the public utility category in 2022. Some businesses that needed a Filipino partner when the structure was formed no longer do.

A change in the cap can be worth more than a restructuring. The Mactan-Cebu criminal case was dismissed because the activity stopped being a public utility while the case was pending, and the change applied retroactively in the accused’s favour. That is a real mechanism, not a technicality, and it is the first thing to test before spending money on anything else.

The disclosure obligation is not limited to new companies, and it does not depend on the sector. Existing entities file beneficial ownership information with their next general information sheet, and the nominee disclosure requirement applies to them. The next filing is a decision point whether or not you treat it as one.

The paperwork may protect you less than you were told. An undated deed of assignment that has never been recorded in the stock and transfer book is not a transfer binding on the corporation. A structure of that kind can leave a foreign investor exposed under the Anti-Dummy Law while giving him no reliable claim to the shares.

Where the cap still applies, unwinding is a legal question with several possible answers. The options run from restructuring the equity to changing the scope of the business to a genuine partnership on recorded terms. Each carries different tax, corporate and criminal consequences.

This guide is one of the foreign investment guides, which are read in order there and dated against the instruments they rest on.

This guide sits under the firm's foreign investment and market entry practice.

This guide states the law as at the date above. It is general information about Philippine law and not legal advice, and reading it does not create a lawyer-client relationship.