Foreign equity limitations provide the maximum percentage shareholding by foreign stockholders in corporations engaged in partially nationalized economic activities, such as public utilities. Section 2 of SEC Memorandum Circular No. 8 series of 2013 states that “the required percentage of Filipino ownership shall be applied to BOTH (a) the total outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.”

To illustrate, a telecommunications company is allowed to have a maximum of 40% of its capital owned by foreign stockholders. However, capital can be in the form of voting or common shares and non-voting or preferred shares. To comply with the foreign equity limitation, the 40% maximum must be observed not only on the basis of total outstanding shares—i.e., both voting and non-voting shares—but also on the basis of voting or common shares.

Hence, a company with 35% foreign equity on the basis of total outstanding shares, but with 41% foreign equity on the basis of voting shares, violates the 1987 Constitution on the 60-40 maximum equity allocation between Filipino and foreign stockholders in public utility corporations.

The Supreme Court in Gamboa vs. Teves articulated the rationale for this rule, as follows:

The Constitution expressly declares as State policy the development of an economy “effectively controlled” by Filipinos. […] [T]he right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and intent of the Constitution. Any other meaning of the term “capital” openly invites alien domination of economic activities reserved exclusively to Philippine nationals

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