Professional Documents
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Types
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9. Can the JV structure be used in every industry sector? Are there any
restrictions to be considered and carefully assessed before investing in a
JV?
There are investment areas or industry sectors which the Constitution,
existing laws or public policy reserve only to Philippine nationals.
The Foreign Investments Act of 1991 defines a Philippine national as any one of the
following:
A citizen of the Philippines.
A domestic partnership or association wholly owned by citizens of the
Philippines.
A corporation organised under the laws of the Philippines of which at
least 60% of the capital stock outstanding and entitled to vote is owned
and held by citizens of the Philippines.
A corporation organised abroad and registered as doing business in the
Philippines under the Corporation Code, of which 100% of the capital
stock outstanding 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 and at
least 60% of the fund will accrue to the benefit of Philippine nationals.
The Securities and Exchange Commission (SEC) ruled that for corporations
that are engaged in activities which are wholly or partially reserved to
Filipinos, the minimum percentage of Filipino equity must be applied to both
the (Memorandum Circular No. 8, 2013 series):
Total number of outstanding shares of stock, entitled to vote in the
election of directors.
Total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.
The investment areas below are wholly or partially reserved to Philippine
nationals under the 1987 Constitution and applicable laws and regulations
(Tenth Foreign Investment Negative List issued by the President of the Philippines in May
2015).
No foreign equity:
Mass media except recording.
Practice of the following professions.
pharmacy;
radiologic and x-ray technology;
criminology;
forestry;
law (only individuals can practise).
Retail trade enterprises with paid-up capital of less than US$2.5 million.
Private security agencies.
Small-scale mining.
Utilisation of marine resources in archipelagic waters, territorial sea, and
exclusive economic zone as well as small-scale utilisation of natural
resources in rivers, lakes, bays, and lagoons.
Ownership, operation and management of cockpits.
Manufacture, repair, stockpiling and/or distribution of nuclear weapons,
or biological, chemical and radiological weapons and anti-personnel
mines.
Manufacture of firecrackers and other pyrotechnic devices.
Up to 20% foreign equity:
Private radio communications network.
Up to 25% foreign equity:
Private recruitment, whether for local or overseas employment.
Contracts for the construction and repair of locally-funded public works,
except for
infrastructure/development projects;
projects which are foreign funded or assisted and required to
undergo international competitive bidding (where 100% foreign
equity is allowed).
Under current rules of the Construction Industry Association of the
Philippines, a Regular License with Annotation can be issued by the
Construction Accreditation Board to domestic contractor corporations
with 100% foreign equity, provided that the corporation has a minimum
capitalisation of PHP1 billion. Holders of this licence can undertake the
following projects:
vertical projects with a minimum value of PHP5 billion including
office or residential condominiums, hotels, malls, hospitals,
schools, warehouses, airport terminals, marine terminals,
international transport terminals, power generation plants,
manufacturing and assembly facilities, tourism resorts, country
clubs, and golf courses;
horizontal projects with a minimum value of PHP3 billion including
roads, expressways, toll road systems, light rail systems, heavy
rail systems, monorail systems, water distribution systems, bulk
water systems, sewage and sewerage systems, power
transmission and power distribution systems, telecommunications
distribution systems, bridges, flyovers, viaducts, overhead
carriageways, storm cisterns, dams, dikes, seawalls and
breakwater system, and reclamation projects;
contracts for the construction of defence-related structures.
Up to 30% foreign equity
Advertising.
Up to 40% foreign equity
Exploration, development and utilisation of natural resources.
Ownership of private lands.
Operation of public utilities.
Educational institutions other than those established by religious groups
and mission boards.
Culture, production, milling, processing, trading except retailing, of rice
and corn and acquiring, by barter, purchase or otherwise, rice and corn
and their by-products.
Contracts for the supply of materials, goods and commodities to a
government-owned or controlled corporation, company, agency or
municipal corporation.
Facility operator of an infrastructure or a development facility requiring a
public utility franchise.
Operation of deep sea commercial fishing vessels.
Ownership of condominium units.
Manufacture, repair, storage, and/or distribution of products and/or
ingredients requiring Philippine National Police clearance.
Manufacture, repair, storage, and/or distribution of products and/or
ingredients requiring Department of National Defense clearance.
Manufacture and distribution of dangerous drugs
Sauna and steam bathhouses, massage clinics and other similar
activities regulated by law because of risks posed to public health and
morals.
All forms of gambling.
Domestic market enterprises with paid-in equity capital of less than the
equivalent of US$200,000.
Domestic market enterprises with paid-in equity capital of less than the
equivalent of US$100,000 which:
involve advanced technology; or
employ at least 50 direct employees.
Non-Philippine nationals can engage in an export enterprise in which a
manufacturer, processor or service, including tourism, exports 60% or more of
its output, or a trader purchases products that are domestically manufactured
and exports 60% or more of them.
Non-Philippine nationals cannot own or hold land anywhere in the Philippines.
Purpose
Forms of participation
Following the definition of a partnership, parties to a JV can contribute money,
property, or industry to a common fund.
In a corporate JV where the parties contribute equity, subscription to stock of
the corporate JV must be in the form of either cash or property.
Contributions
Other than cash, the following properties can be used as payment for
subscription of shares of stock in a corporate JV:
Land, whether registered or unregistered.
Building, including condominium units.
Personal properties and furniture.
Heavy equipment and machinery.
Shares of stock.
Motor vehicle.
Sea vessel or aircraft.
Intangibles, such as intellectual property rights or mining rights.
Conversion of existing debt to equity.
If the JV involves the transfer by one party to another of systematic knowledge
for the manufacture of a product, the application of a process, or the rendering
of a service, including management contracts, or the transfer, assignment, or
licensing of intellectual property rights except software developed for the mass
market, the JV is deemed to be a technology transfer arrangement governed
by the Intellectual Property Code of the Philippines. Registration of the
agreement with the Intellectual Property Office is optional, provided that the
JV agreement contains the mandatory clauses and excludes the prohibited
clauses.
12. Can a corporate JV's share capital be denominated in a foreign
currency?
The Corporation Code requires the par value of the shares of the corporate JV
to be in Philippine pesos.
Following termination
A non-competition clause that is to be effective on the termination of the JV
must be valid, provided that it does not constitute an unreasonable restraint of
trade. Jurisprudence holds that a non-competition clause is reasonable if it
sets a limitation on the particular type, time and place of the business activity
being restrained.
De facto company/partnership
Anti-trust
Termination
24. Are there constraints on the choice of the law and the jurisdiction
applicable to a JV?
A choice of a foreign substantive law is generally recognised and given effect
under Philippine law, provided that:
The contract has a substantial connection with the law chosen.
The contract's provisions are not against prohibitive laws of the
Philippines, public order, public policy, or good customs.
However, for litigation in the Philippines, the foreign substantive law must be
proven in court. Otherwise, the court must assume that the foreign substantive
law is the same as Philippine law. The chosen law must also have a
connection to the contract. This connection may arise from the place of the
execution of the contract, place of performance, situs of the subject matter of
the contract, or the place of incorporation, place of business, or domicile of the
contracting parties.
A contract can also stipulate a forum chosen by the parties, other than
Philippine courts, which will decide on disputes and claims arising out of the
contract. However, the stipulation will not deprive Philippine courts of
jurisdiction over a subject matter if the court believes that it is a convenient
court to which the parties may resort, if it is in a position to make an intelligent
decision as to the law and the facts of the case, and if it has the power to
enforce a decision.
25. What are the rules relating to validity and authorisation of JVs with
foreign parties?
Validity
JVs with foreign parties are allowed, provided that they comply with applicable
foreign equity restrictions (see Question 7).
Limits
Certain investment areas or business activities are reserved for Philippine
nationals (see Question 9).
In a contractual JV, a Philippine national partnership is one where the
partnership is wholly owned by citizens of the Philippines.
In a corporate JV, a Philippine national is one of the following:
A corporation set up under the laws of the Philippines of which at least
60% of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines.
A corporation set up abroad and registered as doing business in the
Philippines under the Corporation Code of which 100% of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos.
Authorisation
In the case of a corporate JV, a declaration must be made before the SEC if
there is a foreign participation in the corporate JV.
26. Are any of the rules relating to domestic company JVs (see Questions 1
to 24) different for JVs with members incorporated under, or governed by,
the laws of a foreign country?
See Question 9.
Minimum investments/contributions
Board of Investments
Online resources
Corporation Code
W www.officialgazette.gov.ph/1980/05/01/batas-pambansa-bilang-68/
Description. This is a link to the text of the Corporation Code of the
Philippines.
Civil Code
W www.officialgazette.gov.ph/1949/06/18/republic-act-no-386/
Description. This is a link to the text of the Civil Code of the Philippines which
contains the law on partnership.
Board of Investments
W www.boi.gov.ph/files/ipp%202017.pdf
Description. This is a link to the text of the 2017 Investment Priorities Plan
which contains investment areas that qualify for registration with the Board of
Investments
Contributor profiles
Perry L. Pe, Senior Partner
T +555 9555
F + 810 3110
E Perry.Pe@Romulo.com
W www.romulo.com
Professional qualifications. Lawyer, Philippines Bar (1985)
Areas of practice. Energy, infrastructure, mining, oil and gas exploration,
telecommunications, public-private partnerships
Languages. English, Filipino
Professional associations/memberships. Former president, Management
Association of the Philippines.
T +555 9555
F + 810 3110
E Andrea.Relucio@Romulo.com
W www.romulo.com
Professional qualifications. Lawyer, Philippines Bar (2001); New York Bar (2012).
Areas of practice. Energy, banking and finance, infrastructure,
telecommunications, public-private partnerships
Languages. English, Filipino
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