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FOREIGN

CORPORATIONS
DIZON, JEHANN
ROMERO, EDLYN

SECTIONS 123 TO
136, CCP

DEFINITION
A corporation formed, organized, or existing under
any law other than those of the of the Philippines,
and whose laws allow Filipino citizens and
corporations to do business in its own country or
state. (Sec. 123 CCP)

The Philippine Government is encouraging


foreign investors to invest in the country with
businesses that will provide opportunities in
employment, develop the productivity of
resources, heighten the volume as well as
the value of exports and provide the future
development of the economys foundation.

LAWS APPLICABLE TO FOREIGN


CORPORATIONS
GR: Philippine laws
EXC: Laws of State of creation
A. the creation, formation, organization, or dissolution of
corporations; and
B. the relations, liabilities, responsibilities, or duties of
members, stockholders, or officers of corporations to each
other or to the corporation, are governed by the laws of
the State of its creation. (Sec. 129, CCP)

FOREIGN INVESTMENT
ACT OF 1991 (RA 7042)

General Rule: A foreign corporation can have no legal


existence or status beyond the bounds of the State or
sovereignty by which it is created.
Exception: A foreign corporation may exist and operate
in another country or Sate:
With the consent or comity of the foreign state where
business is conducted (Consent Doctrine)
Subject to the conditions and restrictions it may
impose (State may require license, permit, certificate)

HOW TO DETERMINE WHETHER A CORPORATION IS A


DOMESTIC CORPORATION OR A FOREIGN CORPORATION?

Incorporation Test
the nationality of the Corporation is that of the state of
the incorporation regardless of the nationality of its
stockholders.

Control Test
the nationality of the corporation depends on the
nationality of the controlling stockholders.

GRANDFATHER RULE
Used to determine the nationality of the corporation
vis--vis compliance with the provisions of the
Constitution
and
other
laws
on
nationality
requirements.
The combined totals in the investing corporation and
the investee corporation must be traced to determine
the total percentage of Filipino ownership.

P.
CO.

WHO ARE PHILIPPINE NATIONALS


UNDER THE FIA?
Citizens of the Philippines;
Domestic Partnership or association wholly owned by citizens of the
Philippines;
A corporation organized under the laws of the Philippines of which at least
60% of OCS and entitled to vote is owned and held by Filipino citizens;
A corporation organized abroad and registered as doing business in the
Philippines under the CC of which 100% of the OCS and entitled to vote is
wholly owned by Filipinos;
A trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine National at least 60% of the
fund will accrue to the benefit of the Philippine nationals.

To own land in the Philippines


To acquire the entire capital of a Philippine Corporation
which owns lands in the Philippines

J.G. SUMMIT HOLDINGS, INC. VS. CA


(2005)
No law disqualifies a person from
purchasing shares in a landholding
corporation even if it will exceed the
allowed foreign equity. What the law
disqualifies is the corporation from
owning the land.

WHY REGULATE FOREIGN


CORPORATIONS?
To place them in equality with domestic
corporations
Subject them to inspection so that their condition
may be known
Protect the residents of the State doing business
with them by subjecting them to the Courts of the
State

WHAT REQUIREMENTS MUST BE


COMPLIED WITH BEFORE A FOREIGN
CORPORATION
CAN DO BUSINESS IN THE PHILIPPINES?

FOREIGN
CORPORATIONS

DOING BUSINESS IN THE


PHILIPPINES
Intends to do business in the
Philippines under its foreign
charter

Secure a License to do Business in the


Philippines

By incorporating a Philippine
company

Secure the approval of the SEC by filing its


incorporation papers, together with
authenticated copies of its foreign charter
and by-laws.

REQUIREMENTS FOR FOREIGN CORPORATIONS TO


DO BUSINESS IN THE PHILIPPINES

1. Secure a license to transact business with


the SEC
2. Secure a Certificate of Authority from an
Appropriate Government Agency
(Sec. 125 and 126, CCP)

DOCUMENTS REQUIRED FOR THE


APPLICATION AND ISSUANCE OF LICENSE
1. Certified copy of its AOI, with a translation to an official language of the
Philippines, if necessary
2. Application for a license under oath
Must specifically set forth the matters enumerated by law, unless already
stated in its AOI

3. Certificate under oath by the authorized official of the jurisdiction of its


incoporation RECIPROCITY COMPLIANCE
4. Sworn statement of the president or any authorized officer of the
corporation
Corporation is solvent and in sound financial condition
Assets and liabilities for the previous year

5. Certificate of Authority from the appropriate government authority,


whenever required by law.
6. Written power of attorney Designation of a RESIDENT AGENT
7. (Foreign Banks, Financial and Insurance Corporations) Additional
requirements as prescribed by law

RESIDENT AGENT
An individual or a domestic corporation on whom any summons and other
legal processes may be served in all actions or other legal proceedings
against such corporation.
In case the resident agent is an individual, he must be of good moral
character and of sound financial standing.

CONDITIONS SUBSEQUENT TO
ISSUANCE OF LICENSE
1. The foreign corporation shall transact only for the purpose or purposes
for which it is authorized under its license
2. Within 60 days from issuance of licensee, the licensee shall deposit with
the SEC satisfactory securities in the actual market value of at least Php
1000,000 for the benefit of present and future creditors In the
Philippines and to compel foreign firms to invest and buy PH Securities
3. Within 6 months after each fiscal year of the license, it will deposit
additional securities (2% of the amount by which the licensees gross
income for that fiscal year exceeds 5 Million and such deposit shall be
increased if actual market value of the securities has decreased by
10%).
4. It must comply with existing laws, provisions, regulations. Otherwise,

EFFECT OF THE ISSUANCE OF THE LICENSE


TO DO BUSINESS INT THE PHILIPPINES
Commencement of transacting its business in the
Philippines
May continue to do so for as long as it retain its
authority to act as a corporation under the laws of
the country or state of its incorporation, unless
such license is sooner surrendered, revoked,
suspended, or annulled.

RIGHT TO SUE
Whether a foreign corporation is possessed of the right to sue in
the Philippines is determined as follows:
1. If the foreign corporation is transacting or doing business in the
Philippines with a license, it has the right to sue within the
jurisdiction of the Philippines;
2. If it is transacting or doing business without a license, it cannot
sue;
3. If it is not transacting or doing business in the Philippines, it can
sue even if it is not possessed of any license.

RIGHT TO BE SUED
A foreign corporation may be sued in the Philippines:
1. If it is transacting or doing business in the
Philippines with a license;
2. If it is transacting or doing business in the
Philippines without a license.
However, if it is not transacting or doing business in the
Philippines and does not have any license to so transact
or do business in the Philippines, it cannot be sued in the
Philippines for lack of jurisdiction.

MULTINATIONAL COMPANY

A foreign company or a group of


foreign companies with business
establishments in two or more
countries.

REGIONAL OR AREA
HEADQUARTERS (RHQS)
an office whose purpose is to act as an administrative
branch of a multinational company engaged
in
international trade with principally serves as supervisory,
communications and coordination center for its
subsidiaries, branches or affiliates in the Asia-Pacific
Region and other foreign markets and which does NOT
earn or derive income in the Philippines.

MINIMUM REQUIREMENTS
Certifications from the Cosulate or Embassy or a duly authenticated certification of the
Department of Trade or its foreign equivalent that the entity is engaged in international
trade with affiliates, subsidiaries or branch offices in the Asia-Pacific Region and other
foreign markets
Duly authenticated certification from the principal officer of the foreign entity stating
that the foreign entity has been authorized by its Board of Directors or governing body
to establish its regional or area headquarters in thePhilippines, specifying:
Activities of the regional or area headquarters that shall be limited to supervisory, communications
and coordination center for its subsidiaries, etc.
That it will not derive any income from the Philippines nor participate in any management of any
subsidiary or branch, nor solicit or market goods and services on behalf of its mother company or
subsidiaries, etc.
It shall notify the Board of Investments and SEC of any decision to close down or suspend operations
at least 15 days before it is effected

Undertaking that the multinational company will remit


into the country such amount as may be necessary to
cover its operations in the Philippines but such amount
shall not be less than $50,000.00 annually.

SUBSEQUENT TO THE ISSUANCE OF


LICENSE OF RHQS
Within 30 days from receipt of certificate of Registration from SEC, the
foreign company shall submit to the SEC a Certificate of Inward
Remittance showing that the required amount has been remitted to the
Philippines
Annually, within 30 days from the anniversary date of its registration, it
will submit proof of inward remittance of the same amount to the SEC.
Any violation by the RHQ of any provisions of the Omnibus Investment
Code or its implementing rules and regulations, or any other terms and
conditions shall be sufficient cause for the cancellation of its license or
registration.

REGIONAL OPERATION HEADQUARTERS


(ROHQ)
a foreign business entity which is allowed to derive income in the
Philippines by performing qualifying services to its affiliates, subsidiaries
or branches in the Philippines, in the Asia-Pacific Regions and in other
foreign markets.
ROHQs of banking and financial institutions are required to secure
licenses from the SEC and the Bangko Sentral ng Pilipinas, upon the
recommendation of the Board of Investments.

MINIMUM REQUIREMENTS
Certifications from the Cosulate or Embassy or a duly authenticated certification of the
Department of Trade or its foreign equivalent that the entity is engaged in international trade
with affiliates, subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets
Duly authenticated certification from the principal officer of the foreign entity stating that the
foreign entity has been authorized by its Board of Directors or governing body to establish its
regional or area operating headquarters in the Philippines, specifying:
The ROHQ may engage in the following qualifying services:

General Administration and Planning


Business Planning and Coordination
Sourcing/Procurement of raw materials and components
Corporate finance advisory services
Marketing control and sales promotion
Training and personnel management
Logistics services
Research and development services, and product development
Technical support and maintenance
Data processing and communications
Business development

They are prohibited from offering the said services to


other entities other than their affiliates, branches or
subsidiaries as declared in their registration with the SEC
nor shall be allowed to directly or indirectly solicit

AMENDMENT OF AOI AND BY-LAWS


After amendment, such foreign corporation shall, within 60
days after its effectivity shall file with the SEC and any
appropriate government agency, duly authenticated AOI and
by-laws.
The amendment shall not alter or enlarge the purpose for
which such corporation is authorized to transact business in
the Philippines.

(Sec. 130, CCP)

WHEN AMENDED LICENSE IS


REQUIRED
1. It changes its corporate name;
2. It desires to pursue in the Philippines other or additional
purposes.
. Note: Failure to comply with Section 131 and conducts business in the
Philippines may not intervene in any action before any court or
administrative agency but such corporation may be sued.

MERGER OR CONSOLIDATION INVOLVING


A FOREIGN CORPORATION
1. With a domestic corporation
Concurrent legislation in each State.
2. With another foreign corporation
Articles of merger or consolidation as prescribed in
Section 132.
Petition of withdrawal of license (in the case of a FCDB
in the Philippines is absorbed)

EFFECTS OF DOING BUSINESS WITHOUT A


LICENSE
Suit BY foreign corporation
Suit AGAINST foreign corporation
Application of the principle of ESTOPPEL
Continuation of doing business
Penal Sanction
Right to relief by other guilty party

REVOCATION OF LICENSE
Effects of revocation:
Cannot affect the validity of contracts entered into
before the revocation nor its right to maintain an action.
After revocation, FC can seek redress from the courts to
enforce contracts; contracts entered into after
revocation still valid.
Pursuant to Section 133, FC can no longer transact
business in the Philippines.

WITHDRAWAL OF A FOREIGN
CORPORATION
1. A petition for withdrawal of license must be filed with the SEC
which shall issue a certificate of withdrawal only after compliance
with the requirements mentioned in Section 136.
2. To ascertain the foreign corporation has no outstanding liabilities
to residents in the Philippines, the Commission shall have to make
an examination and inspection of its books and records.
3. The courts may review the action of the Commission approving
the withdrawal of a foreign corporations.