The Revised Corporation Code of the Philippines has brought significant changes to the corporate landscape in the country. For foreign corporations looking to do business in the Philippines, understanding the new rules and regulations is essential.
What is a foreign corporation?
A foreign corporation is one formed, organized or existing under laws other than the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or State.
What are the bases of authority over foreign corporations?
The bases of authority over foreign corporations are:
- Consent; and
- Doctrine of “doing business”.
What are the laws applicable to a foreign corporation lawfully doing business in the Philippines?
A foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class.
Note: This rule shall not apply with respect to the creation, formation, organization or dissolution of corporations or to those which fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation.
What acts of a foreign corporation are included in the phrase “doing business” in the Philippines?
The phrase “doing business” shall include:
- Soliciting orders, service contracts, opening offices, whether called “liason” offices or branches;
- Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling 180 days or more;
- Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and
- Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.
What are the tests on whether a foreign corporation is doing business in the Philippines?
The tests to determine on whether a corporation is doing business in the Philippines are:
- Substance test – Whether the foreign corporation is maintaining or continuing in the Philippines the body or substance of the business for which it was organized or whether it has substantially retired from it and turned it over another; and
- Continuity test – Whether there is continuity of commercial dealings and arrangements, contemplating to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of, the purpose and object of its organization.[1]
What acts of a foreign corporation do not constitute as “doing business” in the Philippines?
- Mere investment as a shareholder in a domestic corporation and/or the exercise of rights as such investor;
- Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account:
- Publication of a general advertisement through any print or broadcast media;
- Maintaining a stock of goods in the Philippines solely for the purpose having the same processed by another entity in the Philippines;
- Having a nominee Director or officer to represent its interest in sur corporation;
- Consignment by the foreign corporation of equipment with a local company to be used in the processing of products for export;
- Collecting information in the Philippines; and
- Performing services auxiliary to an existing isolated contract of sale which a not on a continuing basis. [2]
The mere ownership by a foreign corporation of a property in certain state unaccompanied by its active use in furtherance of the business for which it was formed is insufficient in itself to constitute “doing business”.[3]
When is the consent to transact business in the Philippines obtained by a foreign corporation?
A foreign corporation shall have the right to transact business in the Philippines after obtaining a license for that purpose in accordance with the RCC and a certificate of authority from the appropriate government agency.
What are the requisites for issuance of a license?
The requisites for issuance of a license are:
- An application for License under oath;
- A copy of its Articles of Incorporation and by-laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary;
- Attached to the application for license shall be a duly executed Certificate under oath by the authorized official, attesting to the fact that the laws of the country allow Filipino citizens and corporations to do business therein:
- The application shall be accompanied by a Statement under oath of the President of the corporation, showing that applicant is solvent and in sound financial condition, and stating its assets and liabilities as of the date not exceeding 1 year immediately prior to the filing of the application;
- Corporations governed by Special laws (such as banks and insurance companies) shall also submit a previously issued authority from the appropriate government agency as may be required by law for corporations in its line of business; and
- Appointment of a Resident Agent
What is a resident agent?
A resident agent is a resident of the Philippines, designated by the corporation, on whom summons and other illegal processes maybe served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home address.
Who could be a resident agent?
- An individual, who must be of good moral character and of sound financial standing, residing in the Philippines; or
- A domestic corporation lawfully transacting business in the Philippines designated in a written power of attorney by a foreign corporation authorized to do business in the Philippines.
What are the principles on the personality of a foreign corporation to sue?
The principles regarding the right of a foreign corporation to bring suit in Philippine courts are:
- If a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts;
- If a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction;
- If a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality in a suit brought before Philippine courts; and
- If a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction.[4]
When may a foreign corporation be sued in the Philippines?
A foreign corporation Transacting business in the Philippines, whether or not with a license, may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.
When may an unlicensed foreign corporation be allowed to sue?
A foreign corporation needs no license to sue before Philippine courts on an isolated transaction.
The phrase “isolated transaction” refers to a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization.[5]
What is an isolated transaction?
The Court has not construed the term “Isolated transaction” to literally mean “one” or a mere single act. The phrase “isolated transaction” has a definite and fixed meaning. i.e., a transaction or series or transaction set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in progressive pursuit of the purpose and object of the business organization.[6]
Source:
The Revised Corporation Code
[1] Agilent Technologies Singapore v-Integrated Silicon Technology Phil. Corp. G.R. No. 154618, April 4, 2004
[2] IRR of FIA, Sec. 1.
[3] MR Holdings Ltd, v. Bajar, G.R. N 138104, April 11, 2002
[4] Agilent Technologies Singapore v. Integrated Silicon Technology Phil. Corp., G.R. No. 154618, April 14, 2004
[5] Lorenzo Shipping Corp. V. Chubb and Sors Inc., G.R. No. 147724, June 8, 2004
[6]Id.
