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FOREIGN CORPORATION

A foreign corporation is one formed, organized or existing under any


laws other than those of the Philippines and whose laws allow Filipino
citizens and corporations to do business in its own country or state.

The right to do business in the Philippines shall only be given to a


foreign corporation if it obtained a license to transact business in this
country in accordance with the Corporation Code and a certificate of
authority from the appropriate government agency.

 What constitutes a foreign corporation to be “doing business in


the Philippines”?

Remember that the tax code only defined non resident aliens doing
business in the Philippines – that is, if their stay exceeds 180 days at the
aggregate. However, the tax code nor the corporation code does not
distinguish between a foreign corporations doing business from those
which are not. Well, good news to everyone since the Foreign Investments
Act defined it.

Well, doing business implies continuity in commercial dealings;


and, it is only so when the acts performed is normally incident to and in
the progressive prosecution of the purpose of the actor’s organization.

Now, if a foreign corporation implies that it is doing business


here in the Philippines, then it is expected that the same must have been
licensed to do so. Otherwise, they are not performing continuity in their
commercial dealings in accordance with law (see above definition).

On the other hand, if a foreign corporation implies that it is not


doing business here in the Philippines – that it transacted some
business but which are isolated or only involved a single transaction,
then they do not need to procure a license to do so because there is no
continuity of commercial dealings. In this case, they can perform acts in
connection with that isolated or single transaction. Actually, they can
also seek to enforce their rights not involving any business transacted
here in the Philippines – for example, to protect its corporate name,
trademark, trade name, reputation, or goodwill (the same is also
available by virtue of reciprocity under a treaty in which the Philippines
is a signatory with regards to Intellectual Property Rights; or, with regards
to reciprocity given by the law of the nationality of such foreign corporation
to their Filipino counterparts) as well as involving redress from criminal
acts. In any case, respecting contractual obligations, the (domestic)
party entering into a transaction with the foreign corporation is
estopped from challenging the latter’s personality.

The acts being referred above include capacity to sue and be


sued. Ofcourse, the above rule applies when the foreign corporation
has been sued and does not question the jurisdiction of the court and
actually defended itself in a full-blown trial.

However, what if the foreign corporation appointed a


distributor/representative (this is different from resident agent, cos they
have a different purpose) here in the Philippines, would that count as
“doing business”? It depends. If the resident agent is acting
independently for its own name and account, then the appointment
does not constitute “doing business”.

LICENSING PROCESS FOR FOREIGN CORPORATION

To be able to do business here in the Philippines, Section 125 of the


Corporation Code provides that Foreign Corporations must accomplish the
following:

1. Submission of its certified copy of articles of incorporation and


by-laws, plus translations to Philippines’ official language if
necessary;
2. Submission of the application which must be under oath;
3. Attachment (to the application) of a certificate of its incorporation
duly executed under oath by its authorized official(s) of the jurisdiction
of its incorporation, attesting that the laws of the country or state of
the applicant allows Filipino citizens and corporations to do business
theirein, and that the applicant is an existing corporation in good
standing; plus, a translation thereof in English, under oath of the
translator, if necessary.
4. Attachment (to the application) of a statement under oath by the
president or any person authorized by the corporation, showing
that the applicant is solvent and in sound financial condition,
setting forth the assets and liabilities of the corporation as of the
date not exceeding one (1) year immediately prior to the filing of
the application, to the satisfaction of the Securities and Exchange
Commission and other governmental agency in the proper cases.

Additional requirements are provided in case of foreign banking,


financial and insurance corporations and other foreign corporations
subjected to appropriate government agencies. Respectively, they must
comply with the provisions of existing laws applicable to them; and, they
must procure a certificate of authority from the appropriate
government agency they are subjected with, whenever required by law.

The following are the contents of an application for a license to do


business in the Philippines:

Unless already stated in the articles of incorporation, every


application shall specifically state,

1. The date and term of incorporation;


2. The complete address of the principal office of the corporation in the
country or state of incorporation;
3. The name and address of its resident agent (specifically stating
its authority to accept summons and process in all legal proceedings
and, pending the establishment of a local office, all notices
affecting the corporation;
4. The place in the Philippines where the corporation intends to
operate;
5. The specific purpose(s) or purposes which the foreign corporation
intends to pursue in the Philippines (which must be the same as
the purpose(s) specifically stated in the certificate of authority issued
by the appropriate government agency;
6. The names and addresses of the present directors and officers of the
corporation;
7. A statement of its authorized capital stock and the aggregate
number of shares which it has authority to issue, itemized by
classes, par value of shares, shares without par value, and series, if
any;
8. A statement of its outstanding capital stock and the aggregate
number of shares it has issued, itemized by classes, par value of
shares, shares without par value, and series, if any;
9. A statement of the amount actually paid in; and,
10. Necessary or appropriate information in order to enable the
Securities and Exchange Commission to determine whether such
corporation is entitled to a license to transact business in the
Philippines, and to determine and assess the fees payable.

After the submission of the foregoing and compliance with all the
requirements of law, the SEC shall now issue a license to transact
business in the Philippines for the purpose(s) specified in such
license. The foreign corporation may now do business in the Philippines
unless its franchise is surrendered, revoked, suspended or annulled.

After issuance of the license, and within 60 days, the foreign


corporation (only for BRANCH OFFICE) shall deposit with the SEC
securities consisting bonds, shares, or equities, whether from the
government or from domestic corporations registered in the stock
exchange or from registered enterprises under R.A. 5186 or from
domestic insurance companies and banks, or any combination of such
securities, with at least PhP 100,000.00 actual market value.

Furthermore, the licensee shall have the obligation to provide


additional security deposit every fiscal year in the amount of 2% of its
gross income for such fiscal year exceeding PhP 5,000,000.00 actual
market value within 6 months of such fiscal year; plus, additional
securities if the actual market value of the deposited securities has
decreased by at least 10% of their actual market value at the time of their
deposit.

On the other hand, the SEC may, at its discretion, release a part of the
additional securities deposited to the licensee if its gross income has
decreased, or if the actual market value of the total securities on
deposit has increased, by more than 10% of the actual market value of
the securities at the time they were deposited; and, the licensee shall
be entitled to collect the interest or dividends on the securities deposited.
In the event the licensee ceases to do business in the Philippines, the
securities deposited as aforesaid shall be returned, upon the
licensee’s application therefor and upon proof that the licensee has
no liability to Philippine residents, including the Government of the
Republic of the Philippines.

The purpose of security deposit is to protect present and future creditors


of the licensee in the Philippines.
DIFFERENT MODES HOW FOREIGN COMPANIES CAN ENTER INTO
BUSINESS IN THE PHILIPPINES:

Necessarily, Foreign Corporations would do business here in the


Philippines by annexation of their office. Aside from the requirements of
Sec. 125 and 126 of the Corporation Code, specifically because of Sec.
125(10), The SEC requires necessary information to determine and classify
modes on how foreign corporations may enter into business in the
Philippines (with Subsidiaries as the only business enterprise
organized under Philippine laws while the others are organized under
their respective foreign laws) and they are as follows:

A Subsidiary Company (Daughter Company) is a domestic


corporation with more than 40% foreign equity (shares). It becomes a
legally independent unit of the investing foreign corporation and is
governed by Philippine laws but it has the right to organize itself as a
domestic corporation under the general laws of its mother country. It
is required that domestic market oriented corporations with at least 40%
foreign equity has a paid-up capital of at least USD 200,000.00; for
export-oriented enterprises, PhP 5,000.00. Its project may register with the
Board of Investments or Philippine Economic Zone Authority to qualify as
an export-oriented enterprise on the condition that 70% of its
products/services must be sold or used on overseas markets (if not,
only 60% is required under the Foreign Investments Act). Registering
with PEZA means it will locate itself in one of the Economic Zones or
IT Buildings accredited by PEZA. It will receive the tax benefits of PEZA-
registered enterprise in such case.

Documentary Requirements:
1. Form F-100
2. Name Verification Slip
3. Articles of Incorporation and By-Laws
4. Treasurer’s Affidavit / Authority to verify bank account
5. Bank Certificates of Deposit notarized in the place where the bank
signatory is assigned
6. Written Joint Undertaking to change corporate name signed by
two Incorporators/Directors
7. Proof of Inward Remittance by Non-Resident Aliens & Foreign
Corporation
Application Procedure:
1. Verification/Reservation of proposed name
2. Accomplishment of F-100 FORM from SEC (specifically in its
Company Registration and Monitoring Department)
3. Submission of Documentary Requirements
4. Payment of Filing Fees
5. Issuance of Certificate of Incorporation

A Branch Office is a foreign corporation that carries out the


business activities of its head office and derives income from the
domestic country. It is required that domestic market oriented
corporations with at least 40% foreign equity has a paid-up capital of at
least USD 200,000.00; for export-oriented enterprises, PhP 5,000.00. Its
project may register with the Board of Investments or Philippine Economic
Zone Authority to qualify as an export-oriented enterprise on the
condition that 70% of its products/services must be sold or used on
overseas markets (if not, only 60% is required under the Foreign
Investments Act). Registering with PEZA means it will locate itself in
one of the Economic Zones or IT Buildings accredited by PEZA. It will
receive the tax benefits of PEZA-registered enterprise in such case.

Documentary Requirements:
1. Form F-103
2. Name Verification Slip
3. Authenticated/Certified copies of Articles of Incorporation or
Partnership
4. Authenticated copy of Board Resolution authorizing
establishment of office in the Philippines designating a resident
agent plus a stipulation that “in the absence of a resident agent, or
upon cessation of business, in the Philippines, any summons or
notices may be served to SEC as if the same is made upon the
corporation at its home office.”
5. Financial Statements dated not exceeding 1 year immediately
prior to the application certified by independent CPA of home
country and authenticated before the Philippine
Consulate/Embassy.
6. Acceptance of appointment by Resident Agent, if not signatory
in the application form (F-103)
7. Proof of Inward Remittance.

Application Procedure:
1. Verification/Reservation of proposed name
2. Accomplishment of F-103 FORM from SEC (specifically in its
Company Registration and Monitoring Department)
3. Submission of Documentary Requirements
4. Payment of Filing Fees
5. Issuance of Certificate of Incorporation

On the other hand, a Representative Office does not derive its


income from the domestic country, and it is fully subsidized by its
head office (for operational purposes). Its function is to deal directly with
clients of the parent company – to disseminate information, acting as a
communication center and to promote company products, as well as
to act as quality control of products for export. It means that, it does
not enter into business contracts in the domestic country. The
purpose of requiring inward remittance of USD 30,000.00 is to cover its
operating expenses.

Documentary Requirements:
1. Form F-104
2. Name Verification Slip
3. Authenticated/Certified copies of Articles of Incorporation, plus
English translation if necessary.
4. Authenticated copy of Board Resolution authorizing
establishment of office in the Philippines designating a resident
agent plus a stipulation that “in the absence of a resident agent, or
upon cessation of business, in the Philippines, any summons or
notices may be served to SEC as if the same is made upon the
corporation at its home office.”
5. Financial Statements dated not exceeding 1 year immediately prior
to the application certified by independent CPA of home country
and authenticated before the Philippine Consulate/Embassy.
6. Affidavit executed by resident agent stating that mother office
is solvent and in sound financial condition.
7. Acceptance of appointment by Resident Agent, if not signatory in
the application form (F-104).
8. Proof of Inward Remittance of at least USD 30,000.00.
Application Procedure:
1. Verification/Reservation of proposed name
2. Accomplishment of F-100 FORM from SEC (specifically in its
Company Registration and Monitoring Department)
3. Submission of Documentary Requirements
4. Payment of Filing Fees
5. Issuance of Certificate of Incorporation

Under RA 8756, Regional Area Headquarters (RHQ) / Regional


Operating Area Headquarters (ROHQ) is established by multinational
companies. They must be organized under foreign laws; otherwise they
are considered domestic corporations (obviously reverting itself as a
subsidiary company). Also, it must be shown that its parent firm, indeed,
has a multinational character in a sense that it has branches, affiliates
and subsidiaries in the Asia Pacific Region and other foreign markets
for the applicant to be classified as one of the Headquarters of its
parent multinational corporation.

Regional Area Headquarters’ function is limited to act as a


supervisory, communication and coordinating center for its (the parent
corporation) subsidiaries, affiliates and branches in the Asia-Pacific
region. In short, it acts as an administrative branch of the multinational
company engaged in international trade. Necessarily, it must not be
deriving income within the Philippines and does not participate in the
business management of the parent’s subsidiaries or branch offices
located in the Philippines. It must also have a capital of USD 50,000.00 to
cover its operating expenses. It also enjoys certain tax incentives and
exemptions.

On the other hand, a Regional Operating Area Headquarters may


or may not derive its income in the domestic country as it performs
qualifying services to its affiliates, subsidiaries, and branches in the
Philippines (it is like a branch Office). The minimum capital requirement for
ROHQ is USD 200,000.00 in one time remittance.

Registration Procedure

Documentary Requirements:
1. Application Form for RHQ/ROHQ
2. Name Verification Slip
3. Authenticated Certification from its Philippine Trade
Representative that “the foreign firm is engaged in
international trade w/ affiliates, subsidiaries, or branch offices in
the Asia Pacific region & other foreign markets.”
4. Authenticated Certification from its principal officer that
“applicant is authorized by their Board of Directors or governing
body to establish RHQ/ROHQ in the Philippines”.
5. Endorsement of the BOI indicating its approval of RHQ/ROHQ

Application Procedure:
1. Verification/Reservation of proposed name
2. Accomplishment of RHQ/ROHQ Form
3. Procurement of Board of Investment endorsement
4. Submission of Documentary Requirements
5. Payment of Filing Fees
6. Issuance of Certificate of Incorporation

APPOINTMENT OF A RESIDENT AGENT

We have discussed how a foreign corporation may gain entry here in


the Philippines. However, it must be stressed that they must have an
appointed resident agent before they can be given the license to
operate here in the Philippines. Conversely, the resident agent must have
accepted its appointment (only residents and domestic corporations can
become agents.)

The corporation code requires that: if the agent is an individual


residence of the Philippines, he must have proof of good moral
character and of sound financial standing; on the other hand, if the
agent is a domestic corporation, partnership, or law firms or accounting
firms, it must be lawfully transacting business here in the Philippines
(that is, it must have complied with the requirements of the law.)

The only purpose of appointing a resident agent is for the


purpose of receiving summons and other legal processes in any legal
action or proceeding wherein the foreign corporation might have until it
successfully obtain its license to do business (In any case, if it
happens that the resident agent ceased its contract with the foreign
corporation, or failed or neglected to provide the same, SEC may
receive summons and notices for and behalf of the foreign
corporation).

LAWS APPLICABLE or GOVERNING FOREIGN CORPORATIONS

Foreign Corporation lawfully doing business in the Philippines shall


be governed by Philippine laws like any domestic corporations. However,
when it comes to their organization, and issues involving intra corporate
relations, and subsequent dissolution, the laws of their mother country,
or the laws from which country they were organized, shall govern.

AMENDMENTS

as to Articles of Incorporation and By-Laws, within 60 days of the


effectivity of such amendments, the foreign corporation shall file with the
SEC and with the appropriate government agency, a duly authenticated
copy of the amended AoI and By-Laws. The filing of its amendments
shall not itself enlarge or alter the purpose(s) for which they are
authorized to transact business in the Philippines. (n)

as to amendment of license, if the amendment of the AoI of the


foreign corporation entails a change in its corporate name, or if it desires
to pursue additional purpose(s), it should apply for an application to
amend its license with the SEC, with a favorable endorsement of the
appropriate government agency.

MERGER AND CONSOLIDATION

Foreign Corporations are also given the privilege to exercise rights of


succession through corporate reorganization like merger and consolidation.
They are allowed to merge with any domestic corporations permitted to
merge or consolidate under Philippine laws, provided that the requirements
on merger or consolidation as provided in this Code are followed.
In case the merger or consolidation was done among foreign
corporations, it shall submit an authenticated copy of the articles of merger
or consolidation in the same manner as if its AoI or By Laws were amended
(see above discussion). In case the licensee has been the constituent
corporation absorbed, they should also file a petition for withdrawal of
its license. The reason behind this rule is that a license is a privilege
given by the government which has the discretion to revoke such and the
law now provides a mandatory withdrawal of license in case of absorption
in a merger. Being a privilege, a license is non-transferable since it is
neither a right nor a property.

REVOCATION OF LICENSE

The following grounds may cause the revocation or suspension of license


of the foreign corporation by the SEC, in its discretion:

1. Failure to file its annual report or pay any fees as required by this
Code;
2. Failure to appoint and maintain a resident agent in the Philippines as
required by this Title;
3. Failure to submit to the Securities and Exchange Commission a
statement of change of its resident agent or of his address, if any, as
required by this Title;
4. Failure to submit to the Securities and Exchange Commission an
authenticated copy of any amendment to its articles of incorporation
or by-laws or of any articles of merger or consolidation within the time
prescribed by this Title;
5. A misrepresentation of any material matter in any application, report,
affidavit or other document submitted by such corporation pursuant to
this Title;
6. Failure to pay any and all taxes, imposts, assessments or penalties, if
any, lawfully due to the Philippine Government or any of its agencies or
political subdivisions;
7. Transacting business in the Philippines outside of the purpose or
purposes for which such corporation is authorized under its license;
8. Transacting business in the Philippines as agent of or acting for and in
behalf of any foreign corporation or entity not duly licensed to do
business in the Philippines; or
9. Any other ground as would render it unfit to transact business in the
Philippines. (n)

Revocation is affected upon the issuance of certificate of revocation


to the licensee and to the appropriate government agency.

PETITION FOR WITHDRAWAL OF LICENSE:


Only after the following requirements are met may a foreign corporation
withdraw its license (by filing petition for withdrawal of license with the SEC
and upon issuance of certificate of withdrawal):

1. All claims which have accrued in the Philippines have been paid,
compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any, lawfully due to
the Philippine Government or any of its agencies or political subdivisions
have been paid; and
3. The petition for withdrawal of license has been published once a
week for three (3) consecutive weeks in a newspaper of general
circulation in the Philippines.

Be it noted that in case of a licensee that was absorbed in a merger,


withdrawal is mandatory and the above requirements must also be
met.