FOREIGN CORPORATIONS o Regional Headquarters (RHQ)/ Regional

Operating Headquarters (ROHQ)

Section 140. Definition of rights of Foreign
Corporations. - For purposes of this Code, a
foreign corporation is one formed, organized
or existing under laws other than those of the
Philippines' and whose laws allow Filipino
citizens and corporations to do business in its
own country or State. It shall have the right to
transact business in the Philippines after
obtaining a license for that purpose in
accordance with this Code and certificate of
authority from the appropriate government
agency.
2 REQUISITES
(1) The corporation must be formed,
organized, or existing under any laws other than
those of the Philippines; and
(2) The laws of the country where the
corporation was organized allow Filipino citizens
and corporations to do business in its own
country or state
-INCORPORATION TEST AND
RECIPROCITY
Incorporation Test- where a corporation is
determined to be foreign based on the place of
incorporation
Reciprocity- If Philippine corporations are not
recognized in the country where the foreign
corporation was organized, the latter will
likewise not be recognized in the Philippines.
-this is a reflection of the basic rule that a
foreign corporation is one which owes its
existence to the laws of another State and
generally, it has no existence within the State in
which it is foreign.
MODES OF DOING BUSINESS
A foreign corporation can use any of the
following forms:
o Subsidiary
o Representative Office
o Branch Office
● SUBSIDIARY is a corporation that will be
organized in the Philippines through the SEC
-It is a corporation more than 50% voting stock
of which is owned or controlled directly or
indirectly through one or more intermediaries
by another corporation, which thereby becomes
the parent company.
-Subsidiary is a domestic corporation and there
is therefore no need to secure a license to do
business. The parent company is just a
shareholder in the domestic corporation which
has a personality that is separate and distinct
from the said parent company.
● REPRESENTATIVE OR LIAISON OFFICE - deals
directly with the clients of the parent company
but does not derive income from the host
country and is fully subsidized by its head office.
-It undertakes activities such as, but not limited
to info dissemination and promotion of the
company’s products as well as quality control of
products.
- The representative office may only engage in
activities that support the business activities of
the parent company.
● REGIONAL OR AREA HQ OF MULTINATIONAL
COMPANIES – may be organized under P.D.
218. A multinational company is a foreign firm
or entity engaged in international trade with
affiliates, subsidiaries or branches in the Asia-
Pacific Region.
- Asia-Pacific Region – all countries bordering
the Pacific Ocean on the side of Asia + New
Zealand and Australia
● BRANCHES – instead of incorporating a
subsidiary, a foreign corporation may create a
branch in the Philippines which would not be a
legally independent unit and simply obtain a
license in the Philippines.
- A branch of a foreign corporation is without
legal personality that is separate from the
parent company.
- A branch office of a foreign company carries
out the business activities of the head office and
derives income from the host country.
- A branch office is required to deposit
securities with the SEC which will be returned
upon withdrawal of the foreign corporation.
WHY? To provide reasonable assurance that the
branch shall be able to settle its obligations to
the Philippine government and residents.
- Failure to comply with the obligation to
deposit may result in the imposition of admin
fines
 Additional securities shall be deposited
by the branch within six months after
the end of the fiscal year indicated in
the Financial Statements in any of the
followings cases:
(1) If the licensee's gross income within
the Philippines for that fiscal year
exceeds Pl0,000,000.00, the branch
shall make additional deposit with the
SEC securities with an actual market
value equivalent to two percent of the
increase-in the gross income.
(2) If the actual market value of the
securities deposited has decreased by
at least ten percent (10%) from the time
they were deposited, the branch shall
submit additional securities with an
actual market value that would cover
the decrease.
SECURITY DEPOSIT IS NOT REQUIRED for (1)
foreign banking corporation including offshore
banking units, (2) foreign insurance
corporation, (3) foreign non-stock corporations
including foreign religious corporation, (4)
foreign corporations which have established
representatives , (5) regional or area
headquarters of multinational companies, and
(6) operating regional headquarters of
multinational companies
● Reportorial requirements – A representative
office and a branch office of a foreign
corporation shall submit a GIS within 30 days
from the anniversary date of the issuance of the
SEC license and Financial Statements (FS),
stamped “received” by the BIR within 120 days
after the end of the fiscal year indicated in the
FS.
● Notification Update Form (NUF) – the SEC
now additionally requires the submission of a
NUF within 30 days from the occurrence of
certain changes that occur before the
submission of the GIS.
-The NUF is a report to be accomplished by the
president or the resident agent of concerned
foreign corporation containing all information
subject of any change in its principal office
address, accounting period, list of directors and
officers, subsidiaries and affiliates and other
notifications to the SEC.
LICENSE. Before a foreign corporation can
transact business in the Philippines it must
secure proper authorizations under existing
laws.
If a foreign corporation does business in the
Philippines without the required license, the
following effects are expressly provided for in
Section 150 of the RCCP:
(1) The foreign corporation is open to court
actions against it; and
(2) It shall not be allowed to maintain or
intervene in an action, suit or proceeding for its
own account in any court or tribunal or agency
in the Philippines.
PURPOSE of OBTAINING A LICENSE is to
subject the foreign corporations to the
jurisdiction of the local courts; otherwise, a
foreign corporation illegally doing business here
because of its refusal or neglect to obtain the
required license and authority to do business
may successfully though unfairly plead such
neglect or illegal act so as to avoid service and
thereby impugn the jurisdiction of the local
courts.
b. if a foreign corporation does not do business
here, there would be no reason for it to be
subject to the State's regulation because in so
far as the State is concerned, such foreign
corporation has no legal existence.
TERM The law does not provide for the term of
the license to do business. Hence, it was opined
that the license to do business remains valid as
long as the foreign corporation legally exists in
its place of incorporation unless revoked,
surrendered, suspended or annulled in
accordance with the RCCP and special laws.
TEST TO DETERMINE IF CORPORATION IS
DOING BUSINESS IN THE PHLIPPINES IS
Twin Characterization Test – doing business
implies a continuity of commercial dealings and
arrangements and contemplates 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,
the purpose and object of its organization.
● This test includes “Substance Test” and
“Continuity Test”
● GR: The acts of the FC doing business should
be distinguished from a single or isolated
business transactions or occasional, incidental,
and casual transactions that do not come within
the meaning of the law.
o XPN: Where a single transaction is NOT
merely incidental or casual but indicates the
foreign corporation’s intent to do business in
the Ph, said single transaction constitutes
“doing” business in the Philippines.
(1) Substance Test - the foreign
corporation is continuing the body or
substance of the business or enterprise
for which it was organized or whether it
has retired from it or turned it over to
another;
(2) Continuity Test - the doing business
implies a continuity of commercial
dealings and arrangements and
contemplates 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, the purpose and object
of its organization.
NOTE: No general rule as to what constitutes
"doing" or "engaging in" Or "transacting''
business. Each case must be judged in the light
of its own peculiar environmental
circumstances.
THE TRUE TESTS, HOWEVER is whether the
foreign corporation is continuing the body or
substance of the business for which it was
organized or whether it has substantially retired
from it and turned it over to another.
GENERAL PROPOSITION:
a foreign corporation is "doing," "transacting,"
"engaging in," or " carrying on" business in the
State when, it has entered the State by its
agents and engaged in carrying on and
transacting through them some substantial part
of its ordinary or customary business, usually
continuous in the sense that it may be
distinguished from merely casual, sporadic, or
occasional transactions and isolated acts.
The element of CONTINUITY OF COMMERCIAL
ACTIVITIES is therefore important for a foreign
corporation to be deemed doing business in
the Philippines.
ACTUAL TRANSACTION OF BUSINESS
REQUIRED.
-If a foreign corporation does not transact such
kind of business in the Philippines, even if it
exports its products to the Philippines, the
Philippines has no jurisdiction to require such
foreign corporation to secure a Philippine
business license.
 Owning a condominium unit is not
covered by the term doing business;
there is no actual performance of
commercial acts.
 Participating in a bidding process
constitutes "doing business" because it
shows the foreign corporation's
intention to engage in business to
pursue it main business
STATUTORY DEFINITION OF "DOING BUSINESS-
has to be profit-making
- The Foreign Investments Act of 1991,41
defines "doing business"
It includes any 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 functions
normally incident to and in the progressive
prosecution of commercial gain or of the
purpose and object of the business
organization.
● The acts include but are not limited to the ff:
o Soliciting orders
o Entering into service contracts
o Opening offices, whether called “liaison”
offices of branches o Appointing representatives
or distributors domiciled in the Philippines
o Appointing representatives or distributors
who in any calendar year stay in the country for
a period or periods totalling one hundred eighty
(180) days or more
o Participating in the management, supervision
or control of any domestic business, firm entity,
or corporation in the Philippines
● “NOT DOING BUSINESS” – Sec 1 of the IRR of
the FIA of 1991 provides that the ff. shall not be
deemed “doing business”
o Mere investment as a shareholder by a
foreign equity in domestic corporations duly
registered to do business, and/or the exercise
of rights as such investor;
o Having a nominee director or officer to
represent its interest in such corporation
o Appointing a representative or distributor
domiciled in the Philippines that transacts
business in the representative’s or distributor’s
own name and account;
o The publication of a general advertisement
through any print or broadcast media
o Maintaining a stock of goods in the Philippines
solely for the purpose of having the same
processed by another entity in the Philippines
o Consignment by a foreign entity of equipment
with a local company to be used in the
processing of products for export
o Collecting information in the Philippines
o Performing services auxiliary to an existing
isolated contract of sale which are not on a
continuing basis such as installing in the
Philippines machinery it has manufactured or
exported to the Philippines
ESSENTIAL CONDITION. to be considered as
"doing business" in the Philippines under
Section 3(d) of the Foreign Investment Act of
1991 is the actual performance of specific
commercial acts within the territory of the
Philippines for the plain reason that the
Philippines has no jurisdiction over commercial
acts performed in foreign territories
ACTING AS HEADQUARTER. A foreign
corporation is doing business in the Philippines
if for several years, it has been performing
functions such as supervision, communications
and coordination for its home office's affiliates
and in the process has named its local agent
and has employed Philippine nationals.
From this uninterrupted performance by the
foreign corporation of acts pursuant to its
primary purposes and functions as a
regional/area headquarters for its home office.
o Insurance Corporation – a foreign corporation
with a settling agent in the Philippines that
issued 12 marine policies covering different
shipments to the Philippines is considered doing
business in the Philippines. One of its
employees in its country was sent as a settling
agent.
o Exporter – may export its products without
performing in importing countries specific
commercial acts that would constitute doing
business in the importing countries.
The importing country does not acquire
jurisdiction over the foreign exporter who has
not performed any specific commercial act
within the territory of the importing country.
Without jurisdiction over the foreign exporter,
the importing country cannot compel the
foreign exporter to secure a license to do
business in the importing country
o Liaison Office – if a foreign corporation
establishes a fully subsidized extension or
liaison office in the Ph, the liaison office may be
charged with the abilities of the foreign
corporation. The liability may be solidary.
- Distributors. If a foreign corporation that is
engaged in selling of goods has a local
distributor, the foreign corporation can still be
considered as not doing business if the
distributor is transacting business in its own
name independently of the foreign corporation
and in its own account and not in the name or
for the account of the foreign corporation. The
foreign corporation will be considered doing
business if it is in complete control of the
distributor
Sliding Scale Test for Internet Companies.
- these are concerns for companies that do not
have physical presence in the Philippines but
are engaged in e-commerce participated in by
people in the Philippines.
- in this test the determination if personal
jurisdiction can be exercised is directly
proportionate to the nature and quantity of
the commercial activity that the entity
conducts in the internet.
a. Passive Websites which alone do not
generate sufficient contracts in a foreign state
since they only post information therein
b. Active Websites that generate sufficient
business through the internet to justify personal
jurisdiction over them.
c. Interactive Websites that fall under the
middle of the scale because they are hybrid
websites that contain passive as well as active
features. The users of the website normally
exchange information with the website creator
and order or reserve products and make
reservations and conduct business through the
internet.
Personal jurisdiction is asserted over
Interactive Websites on a case-to-case basis
RESIDENT AGENT- The appointment of a
resident agent is a requirement for the issuance
of license to do business
A. an individual who must be of:
(a) good moral character and OF
(b) sound financial standing,
(c) residing in the Philippines or
B. a domestic corporation
(a) lawfully transacting business in the
Philippines;
(c) likewise be of sound financial standing and
(d) must show proof that it is in good standing
as certified by the SEC
 A resident agent is one on whom any
summons and other legal processes
may be served in all actions or other
legal proceedings against the foreign
corporation doing business in the
Philippines.
● The power of a resident agent is limited to
receive, for and on behalf of the corporation,
services and other legal process in all actions
and other legal proceedings against the foreign
corporation.
IF THERE BE NO SUCH AGENT, services must be
made on the government official designated by
law to that effect, or on any of its officers or
agents, directors or trustees within the
Philippines.
● He is not the attorney-in-fact of the
corporation. The resident agent cannot even
sign the certificate on non-forum shopping that
is requirement in filing an initiatory pleading in
court o
WHY? While a resident agent may be aware of
actions filed against his principal, he may NOT
be aware of the actions initiated by the
principal whether in the Philippines against a
domestic corporation or private individual, or in
the country where such corporation was
organized and registered, against a Philippine
registered corporation or a Filipino citizen.
SERVICES OF PROCESS
Summons under the Rules of Court
● Rule 14, Sec 12 of the Rules of Civil Procedure
– provides that when the defendant is a foreign
private juridical entity which has transacted
business in the Philippines, service may be
made on its resident agent designated in
accordance with law for that purpose, or if
there be no such agent, on the government
official designated by law to that effect, or on
any of its officers or agents within the
Philippines.
Substitution or Addition
● In case of substitution or addition of a
resident agent, the foreign corporation shall file
with the SEC a petition for change or
substitution of resident agent within thirty (30)
days after the acceptance of the appointment
by the new resident agent.
 -When service of summons is made
upon the SEC, the SEC shall within 10
days, transmit by mail a copy of such
summons or other legal process to the
corporation at its home or principal
office
● The sending of such copy by the Commission
shall be a necessary part of and shall complete
such service.
● All expenses incurred by the Commission for
such service shall be paid in advance by the
party at whose instance the service is made
APPLICABLE LAW
When Foreign Law Applies.
(1) Creation, formation, or organization of the
foreign corporation;
(2) Dissolution of the foreign corporation;
(3) Rules that fix· the relations, liabilities,
responsibilities, or duties of stockholders,
members, or officers of the corporation to each
other or to the corporation.
GEN: the law of the state of incorporation
normally governs issues relating to the internal
affairs of a corporation.
Example: qualification to inspect corporate
records, are governed by the laws where the
corporation was incorporated.
o Application of that body of law achieves the
need for certainty and predictability of result
while generally protecting the justified
expectations of parties with interests in the
corporation
● Different conflicts principles apply, where the
rights of third parties external to the
corporation are at issue.
AMENDMENTS TO ARTICLES OF
INCORPORATION OR BYLAWS OF FOREIGN
CORPORATIONS
-shall be effected under the law of the country
where the foreign corporation was organized.
The only obligation of the foreign corporation is
that provided for under Section 147.
● Effectivity – the amendments to the AoI or BL
of a foreign corporation licensed to transact
business in the Philippines may become
effective even before they are filed with the SEC
or appropriate government agency
o With respect to domestic corporations,
amendments to the AoI shall take effect only
upon its approval by the SEC.
● Need for amended license – The filing of the
amended articles of incorporation or by-laws by
the foreign corporation, however, does not
itself enlarge or alter the purpose or purposes
for which it is authorized to transact business. o
The FC must first obtain an amended license
showing the other or additional purposes which
it intends to pursue in the transaction of its
business in the Philippines
o If it engages in isolated transactions different
the purpose stated in the AoI, an amended
license is not needed.
AMENDED LICENSE
-requires a foreign corporation authorized to
transact business in the Philippines to obtain an
amended
1. It changes its corporate name; , This is
necessary because the foreign corporation is
authorized to do business under its original
corporate name as stated in its articles of
incorporation and not in its new name, and in
the second case, only “for the purpose or
purposes specified in such license” and “not for
the other or additional purpose”
2. It desires to pursue in the Philippines or for
other additional purposes.
MERGER OR CONSOLIDATION
● If the FC will merge with another FC, the laws
of their country will apply
● If FC will merge with a DC,
(a) there must be a Philippine law permitting
the same, and
(b) the requirements on merger or
consolidation in the RCCP must be complied
with
-Notably, there is still no law that permits the
merger or consolidation of foreign corporations
and domestic corporations
o Hence, foreign corporations are still not
allowed to merge with domestic corporations.
● If the FC doing business in the Philippines will
merge w/ another foreign corporation and the
absorbed corporation is the foreign corporation
doing business in the Philippines, the latter shall
at the same time file a petition for withdrawal
of its license .
o Its license to do business is NOT an asset; it is
not deemed transferred to the surviving
corporation. If the surviving corporation will
continue the business of the licensed dissolved
foreign corporation, then it must file its own
application to do business in the Philippines.
DOING BUSINESS WITH OR WITHOUT A
LICENSE
● If a FOREIGN corporation does business in the
Philippines without a license, it cannot sue
before Philippine courts.
● If a FOREIGN corporation does NOT do
business in the Philippines, it needs NO license
to sue before the 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 with the required license, it can sue
before the Philippine courts on any transaction
● If a FOREIGN corporation does business in the
Philippines without a license, a Philippine
national who has contracted with said
corporation might be estopped from
challenging the foreign corporation’s
personality in a suit before Philippine courts.
CRIMINAL LIABILITY
● The prohibition against doing business
without first securing a license is subject to
penal sanctions. Contract NOT Void
● The contract entered into by a foreign
corporation is not necessarily void ab initio.
● If a foreign corporation which is doing
business without a license enters into a contract
with another party, any defect is cured if it will
subsequently obtain a license to do business.
● The contract is enforceable and his
requirement of registration affects only the
remedy (not the validity of the contract)
Consequences:
o Shall not be permitted to maintain or
intervene in any action, suit or proceeding in
any court or administrative agency of the
Philippines
o But may be sued or proceeded against before
Philippine courts or administrative tribunals on
any valid cause of action recognized under
Philippine laws.
failure of a foreign corporation to secure a
license before transacting business does not
affect the validity of the transactions of such
corporation but simply removes the legal
standing of such foreign corporation to sue.
On the Validity of the Contracts Entered Into
● Contracts entered into by the foreign
corporation BEFORE obtaining a license to do
business shall remain VALID and ENFORCEABLE
o Subsequent procurement of license does not
cure the defect
● WHY? o General Corp v. Union Insurance -
The FACT of doing business in the Philippines
and NOT the non-obtaining of license is the
more crucial point
o Marshall-Wells doctrine – The object of the
statute was not to prevent the foreign
corporation from performing single acts but to
prevent it from acquiring domicile for the
purpose of business without taking the steps
necessary to render it amenable to suit in local
courts.
● General Rule: A foreign corporation
transacting business in the Philippines cannot
SUE but can be SUED
O EXCEPTION
O EXCEPTION
#1: If it obtains a license
#2: If it is “NOT doing business” in the
Philippines (i.e. No intention to do business in
the Philippines) o Exception
#3: Doctrine of Estoppel
CRIMINAL LIABILITY.
-violation of the prohibition against doing
business without first securing a license is
subject to penal sanctions.
ESTOPPEL
- a party is estopped to challenge the
personality of a corporation after
having acknowledged the same by
entering into a contract with it.
- And the doctrine of estoppel to deny
corporate existence applies to foreign
corporations as well as to domestic
corporations;
- one who has dealt with a corporation of
foreign origin as a corporate entity is
estopped to deny its existence and
capacity.
- The principle will be applied to prevent
a person contracting with a foreign
corporation from later taking advantage
of its noncompliance with the statutes,
chiefly in cases where such person has
received the benefits of the contract.
4.01. IN PARI DELICTO RULE.
-no remedy could be afforded to the
parties because of their presumptive
knowledge that the transaction was
tainted with illegality.
-The Court said that equity could not
lend its aid to the enforcement of an
alleged right claimed by virtue of an
agreement entered into in
contravention of law.--------
4.02. ESTOPPEL RULE AND IN PARI
DELICTO RULE RECONSIDERED. While it
is acknowledged that the rule on
estoppel and the in pari delicto rule are
still the prevailing rules, it is submitted
that neither the Estoppel Rule nor the
In Pari Delicto Rule should be applied in
this jurisdiction. The purpose of
requiring a license to do business will
not be served if these two rules will
continue to be considered an exception.
SUBSEQUENT COMPLIANCE ( in relation
to res judicata)
subsequent acquisition of the license
will cure the lack of capacity at the time
of the execution of the contract. Hence,
the foreign corporation can re-file the
case that was previously dismissed after
acquiring a license.
INTELLECTUAL PROPERTY CODE.
-any foreign national or juridical person
who does not engage in business in the
Philippines may bring a civil or
administrative action for opposition,
cancellation, infringement, unfair
competition, or false designation of
origin and false description, whether or
not it is licensed to do business in the
Philippines.
-Similarly, Section 77 of the Intellectual
Property Code provides that any foreign
national or juridical entity not engaged
in business in the Philippines to which a
patent has been granted or assigned
under the Intellectual Property Code
may bring an action for infringement of
patent whether or not it is licensed to
do business in the Philippines under
existing law
REVOCATION OF LICENSE
 Revocation Not Penalty
● The revocation of the license to do
business given to a foreign corporation
is not an infliction of a penalty. It is also
not a deprivation of a right but a
withdrawal of privilege.
● Revocation must still comply with the
requirements provided for under the
Corporation Code.
●– A foreign corporation may still
maintain an action based on contracts
entered into before the revocation of
the license.
o The rule that revocation of license
does not affect the validity of contracts
Grounds for Revocation
● A foreign corporation’s authority to
do business within a state may cease by
the revocation of authority by the host
state. Generally, the certificate may be
revoked whenever the foreign
corporation failed to comply with the
law.
GROUNDS:
(a) Failure to file its annual report or pay any
fees as required by this Code;
(e) A misrepresentation of any material mater
in any application, report, affidavit or other
document submitted by such corporation
pursuant to this Title;
(f) 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;
(g) Transacting business in the Philippines
outside of the purpose or purposes for which
such corporation is authorized under its
license;
(h) Transacting business in the Philippines as
agent of or acting on behalf of any foreign
corporation or entity not duly licensed to do
business in the Philippine; or
(i) Any other ground as would render it unfit to
transact business in the Philippines.
In addition, there may also be revocation if
the foreign corporation is guilty of abusing
or exceeding the corporation's authority,
violating state law; using an unauthorized
name, or acting in a manner detrimental to
the citizens of the state.

(b) Failure to appoint and maintain a resident WITHDRAWAL OF FOREIGN

agent in the Philippines as required by this CORPORATION
Title;
1. State Discretion.
(c) Failure, after change of its resident agent
or address, to submit to the Commission a
statement of such change as required by this
Title;

(d) Failure to submit to the Commission an

authenticated copy of any amendment to its
articles of incorporation or bylaws or of any
articles of merger or consolidation within the
time prescribed by this Title;
 - It is discretionary upon the State to
grant foreign corporations the privilege
of engaging in business in the
Philippines. The foreign corporation
must comply with the rules prescribed
by the SEC. After the license is issued,
however, the foreign corporation may
voluntarily leave the country at its
discretion. The State cannot force the
foreign corporation to continue its
business in the country.
2. Withdrawal. At any rate, while a
foreign corporation has the discretion to
withdraw, it will not be allowed to
formally withdraw and no certificate of
withdrawal will be issued unless its
obligations are paid. The publication
requirement is also imposed in order to
protect third persons who may have
claims against the foreign corporation.
INVESTIGATIONS, OFFENSES, AND
PENALTIES
Section 154. Investigation and Prosecution of
Offenses. - The Commission may investigate
an alleged violation of this Code, or of a rule,
regulation, or order of the Commission.
The Commission may publish its findings,
orders, opinions, advisories, or information
concerning any such violation, as may be
relevant to the general public or to the parties
concerned, subject to the provisions of
Republic Act No. 10173, otherwise known as
the "Data Privacy Act of 2012", and other
pertinent laws.
The Commission shall give reasonable notice
to and coordinate with the appropriate
regulatory agency prior to any such
publication involving companies under their
regulatory jurisdiction.
Section 155. Administration of Oaths,
Subpoena of Witnesses and Documents. -
The Commission, through its designated
officer, may administer oaths and affirmations,
issue subpoena and subpoena duces tecum,
take testimony in any inquiry or investigation,
and may perform other acts necessary to the
proceedings or to the investigation.
Section 156. Cease and Desist Orders. -
Whenever the Commission has reasonable
basis to believe that a person has violated, or
is about to violate this Code, a rule, regulation,
or order of the Commission, it may direct such
person to desist from committing the act
constituting the violation.
The Commission may issue a cease and
desist order ex parte to enjoin an act or
practice which is fraudulent or can be
reasonably expected to cause significant,
imminent, and irreparable danger or injury to
public safety or welfare. The ex parte order
shall be valid for a maximum period of twenty
(20) says, without prejudice to the order being
made permanent after due notice and hearing.
Thereafter the Commission may proceed
administratively against such person in
accordance with Section 158 of this Code,
and/or transmit evidence to the Department of
Justice for preliminary investigation or criminal
prosecution and/or initiate criminal
prosecution for any violation of this Code, rule,
or regulation.
Section 157. Contempt. - Any person who,
without justifiable cause, fails or refuses to
comply with any lawful order, decision,
or subpoena issued by the Commission shall,
after due notice and hearing, be held in
contempt and fined in an amount not
exceeding Thirty thousand pesos
(₱30,000.00). When the refusal amounts to
clear and open defiance of the Commission's
order, decision, or subpoena, the Commission
may impose a daily fine of One thousand
pesos (₱1,000.00) until the order, decision,
or subpoena is complied with.
Civic responsibility means active
participation in the public life of a
community in an informed, committed,
and constructive manner, with a focus
on the common good.
Examples: voting in elections, signing up for
the military, volunteering in the community,
participating in government politics, and
holding public office.
Corporate criminal liability
-holding not only the individuals responsible for
their violations but the corporation itself,
subjecting the latter to hefty fines and
endowing the SEC with additional powers,
including the power to hold persons in
contempt for failing to comply with any of the
SEC's orders or subpoenas
POWERS OF SEC
1) To investigate violation of the RCCP as
well as rules, regulations and orders of the
SEC;
2) To publish its findings, orders, opinions,
advisories, or information concerning
violations of the RCCP as well as rules,
regulations and orders of the SEC;
3) To administer oaths and affirmations;
4) To issue subpoena and subpoena duces
tecum;
5) To take testimony in any inquiry or
investigation;
6) To issue cease and desist orders;
7) To cite persons in contempt; and
8) To impose administrative sanctions.
SUBPOENA (Sec 155)
Gen: corporations are also entitled to right
against unreasonable searches and seizures
Excep: lawful searches and seizures by
public authorities
Example: The SEC may issue subpoena duces
tecum for the production of the corporate
books in the exercise of its regulatory function.
A related power is the visitorial power of the
SEC under Section 178 of the RCCP
CEASE AND DESIST ORDERS (156)
issuance by the SEC of a cease and' desist order
may be ex parte subject to the following
conditions:
(1) the act or practice to be enjoined is either:
(i) fraudulent or
(ii) can be reasonably expected to cause
significant, imminent, and irreparable danger or
injury to public safety or welfare; and
(2) the cease and desist order shall be valid only
for a maximum period of 20 days. It appears
that significant, imminent and irreparable injury
is not necessary if the act or practice is
fraudulent.
In addition, fraud and significant, imminent and
irreparable injury are not necessary if the cease
and desist order will be issued after notice and
hearing.
It is necessary to prove during the hearing that
there is reasonable basis to believe that a
person has violated or is about to violate the
RCCP a rule regulation or order of the SEC.
In addition, under Section 156, the SEC, after
notice and hearing, may issue a permanent
cease and desist order
CONTEMPT. (157)
of the RCCP expressly authorizes the SEC to
punish contempt. The penalty is imposed after
notice and hearing. The penalty is higher if the
refusal amounts to clear and open defiance by
the offender.
Section 158. Administrative Sanctions. - If,
after due notice and hearing, the Commission
finds that any provision of this Code, rules or
regulations, or any of the Commission's orders
has been violated, the Commission may
impose any or all of the following sanctions,
taking into consideration the extent of
participation, nature, effects, frequency and
seriousness of the violation:
 (a) Imposition of a fine ranging from
Five thousand pesos (₱5,000.00) to
Two million pesos (₱2,000,000.00),
and not more that One thousand
pesos (₱1,000.00) for each day of
continuing violation but in no case to
exceed Two million pesos
(₱2,000,000.00);
(b) Issuance of the permanent cease
and desist order;
(c) Suspension or revocation of the
certificate of incorporation; and
(d) Dissolution of the corporation and
forfeiture of its assets under the
conditions in Title XIV of this Code.
Other provisions are consistent with the
developments in the United States and other
countries that modified the rules on corporate
governance.
The related penal provisions include:
(1) Section 161 that punishes violation of
duty to maintain records;
(2) Section 162 that punishes those who
prepare or certify incomplete, inaccurate,
false, or misleading information, reports or
statements;
(3) Section 163 that penalizes an
independent auditor who, in collusion with
the corporation's directors or
representatives, certifies the corporation's
financial statements despite its
incompleteness or inaccuracy, its failure to
give a fair and accurate presentation of the
corporation's condition, or despite
containing false or misleading statements,
(4) Section 169 that punishes retaliation
against whistleblowers; and
(5) Section 172 that punishes even those
who aid, abet, counsel, command, induce,
or cause any violation of the RCCP or any
rule, regulation, or order of the SEC.
A whistleblower refers to any person who
provides truthful information relating to the
commission or possible commission of any
offense or violation under the RCCP.
Section 159. Unauthorized Use of Corporate
Name; Penalties. - The unauthorized use of
corporate name shall be punished with a fine
ranging from Ten thousand pesos
(₱10,000.00) to Two hundred thousand pesos
(₱200,000.00).
Section 160. Violation of Disqualification
Provision; Penalties. - When, despite the
knwoledge of the existence of a ground for
disqualification as provided in Section 26 of
this Code, a director, trustee or officer willfully
holds office, or willfully conceals such
disqualification, such director, trustee or
officer shall be punished with a fine ranging
from Ten thousand pesos (₱10,000.00) to
Two hundred thousand pesos (₱200,000.00)
at the discretion of the court, and shall be
permanently disqualified from being a director,
trustee or officer of any corporation. When the
violation of this provision is injurious or
detrimental to the public, the penalty shall be
a fine ranging from Twenty thousand pesos
(₱20,000.00) to Four hundred thousand pesos
(₱400,000.00).
Section 161. Violation of Duty to Maintain
Records, to Allow their Inspection or
Reproduction; Penalties. - The unjustified
failure or refusal by the corporation, or by
those responsible for keeping and maintaining
corporate records, to comply with Section s
45, 73, 92, 128, 177 and other pertinent rules
and provisions of this Code on inspection and
reproduction of records shall be punished with
a fine ranging from Ten thousand pesos
(₱10,000.00) to Two hundred thousand pesos
(₱200,000.00), at the discretion of the court,
taking into consideration the seriousness of
the violation and its implications. When the
violation of this provision is injurious or
detrimental to the public, the penalty is a fine
ranging from Twenty thousand pesos
(₱20,000.00) to Four hundred thousand pesos
(₱400,000.00).
The penalties impose under this section shall
be without prejudice to the Commission's
exercise of its contempt powers under Section
157 hereof.
Section 162. Willful Certification of
Incomplete, Inaccurate, False; or Misleading
Statements or Reports; Penalties. - Any
person who willfully certifies a report required
under this Code, knowing that the same
contains incomplete, inaccurate, false, or
misleading information or statements, shall be
punished with a fine ranging from Twenty
thousand pesos (₱20,000.00) to Two hundred
thousand pesos (₱200,000.00). When the
wrongful certification is injurious or detrimental
to the public, the auditor or the responsible
person may also be punished with a fine
ranging from Forty thousand pesos
(₱40,000.00) to Four hundred thousand pesos
(₱400,000.00).
Section 163. Independent Auditor Collusion;
Penalties. - An independent auditor who, in
collusion with the corporation's directors or
representatives, certifies the corporation's
financial statements despite its
incompleteness or inaccuracy, its failure to
give a fair and accurate presentation of the
corporation's condition, or despite containing
false or misleading statements, shall be
punished with a fine ranging from Eighty
thousand pesos (₱80,000.00) to Five hundred
thousand pesos (₱500,000.00). When the
statement or report certified is fraudulent, or
has the effect of causing injury to the general
public, the auditor or responsible officer may
be punished with a fine ranging from One
hundred thousand pesos (₱100,000.00) to Six
hundred thousand pesos (₱600,000.00).
Sections 161 to 163 are designed to strengthen
i.nternal control and audits. It was observed
that management of corporations previously
relied on the substantial flexibility of audit
standards "to manage earnings and manipulate
financial data so that operating results
conformed to forecasts. The goal was to keep
the firm's stock price high so that the managers
could profit from their stock options. Because a
standard accounting audit is not a true forensic
audit designed to uncover wrongdoing, but
rather only a sampling audit that may entirely
miss the problem, and because at least some
accountants chose to overlook problems, many
managers thought they could get away with
cooking the books.
Section 164. Obtaining Corporate
Registration Through Fraud; Penalties. -
Those responsible for the formation of a
corporation through fraud, or who assisted
directly or indirectly therein, shall be punished
with a fine ranging from Two hundred
thousand pesos (₱200,000.00) to Two million
pesos (₱2,000,000.00). When the violation of
this provision is injurious or detrimental to the
public, the penalty is a fine ranging from Four
hundred thousand pesos (₱400,000.00) to
Five million pesos, (₱5,000,000.00).
Section 165. Fraudulent Conduct of
Business; Penalties. - A corporation that
conduct its business through fraud shall be
punished with a fine ranging from Two
hundred thousand pesos (₱200,000.00) to
Two million pesos (₱2,000,000.00). When the
violation of this provision is injurious or
detrimental to the public, the penalty is a fine
ranging from Four hundred thousand pesos
(₱400,000.00) to Five million pesos
(₱5,000,000.00).
Section 166. Acting as Intermediaries for
Graft and Corrupt Practices; Penalties. - A
corporation used for fraud, or for committing
or concealing graft and corrupt practices as
defined under pertinent statutes, shall be
liable for a fine ranging from One hundred
thousand pesos (₱100,000.00) to Five million
pesos (₱5,000,000.00).
When there is a finding that any of its
directors, officers, employees, agents, or
representatives are engaged in graft and
corrupt practices, the corporation's failure to
install:
(a) safeguards for the transparent and
lawful delivery of services; and (b)
policies, code of ethics, and
procedures against graft and
corruption shall be prima
 facie evidence of corporate liability
under this section.
Section 167. Engaging Intermediaries for
Graft and Corrupt Practices; Penalties. - A
corruption that appoints an intermediary who
engages in graft and corrupt practices for the
corporation's benefit or interest shall be
punished with a fine ranging from One
hundred thousand pesos (₱100,000.00) to
One million pesos (₱1,000,000.00).
Section 168. Tolerating Graft and Corrupt
Practices; Penalties. - A director, trustee, or
officer who knowingly fails to sanction, report,
or file the appropriate action with proper
agencies, allows or tolerates the graft and
corrupt practices or fraudulent acts committed
by a corporation's directors, trustees, officers,
or employees shall be punished with a fine
ranging from Five hundred thousand pesos
(₱500,000.00) to One million pesos
(₱1,000,000.00).
Section 169. Retaliation Against
Whistleblowers. - A whistleblower refers to
any person who provides truthful information
relating to the commission or possible
commission of any offense or violation under
this Code. Any person who, knowingly and
with intent to retaliate, commits acts
detrimental to a whistleblower such as
interfering with the lawful employment or
livelihood of the whistleblower, shall, at the
discretion of the court, be punished with a fine
ranging from One hundred thousand
(₱100,000.00) to One million (₱1,000,000.00).
Retaliation means committing acts detrimental
to a whistleblower.
Section 170. Other Violations of the Code;
Separate Liability. - Violation of any of the
other provisions of this Code or its
amendments not otherwise specifically
penalized therein shall be punished by a fine
of not less than Ten thousand pesos
(₱10,000.00) but not more than One million
pesos (₱1,000,000.00). If the violation is
committed by a corporation, the same may,
after notice and hearing, be dissolved in
appropriate proceedings before the
Commission; Provided, That such dissolution
shall not preclude the institution of appropriate
action against the director, trustee, or officer
of the corporation responsible for said
violation: Provided, further, That nothing in
this section shall be construed to repeal the
other causes for dissolution of corporation
provided in this Code.
Liability for any of the foregoing offenses shall
be separate from any other administrative,
civil, or criminal liability under this Code and
other laws.
Section 171. Liability of Directors, Trustees,
Officers, or Other Employees. - If the offender
is a corporation, the penalty may, at the
discretion of the court, be imposed upon such
corporation and/or upon its directors, trustees,
stockholders. members, officers, or
employees responsible for the violation or
indispensable to its commission.
Section 172. Liability of Aiders and Abettors
and Other Secondarr Liability. - Anyone who
shall aid, abet, counsel, command, induce, or
cause any violation of this Code, or any rule
regulation or order of the Commission shall be
punished with a fine not exceeding that
imposed on the principal offenders, at the
discretion of the court, after taking into
account their participation in the offense.
Persons Liable. Under Sections 171 and 172
(1) The corporation; and/or
(2) Directors or trustees; (
(3) Stockholders or members;
(4) Officers
(6) Employees;
(7) Persons who aid, abet, counsel, command
induce or cause any violation of the RCCP or any
rule regulation O' order of the SEC.