May a Foreign Corporation do business in the Philippines?

Yes. 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. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with the Corporation Code of the Philippines and a certificate of authority from the appropriate government agency.

Which government agency is responsible for giving a certificate of authority?

A foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary.

What are the requirements needed for the application?

The application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth the following:

1. The date and term of incorporation;
2. The address, including the street number, of the principal office of the corporation in the country or state of incorporation;
3. The name and address of its resident agent authorized 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 or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided, That said purpose or purposes are those 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 the corporation 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 which the corporation 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. Such additional information as may be necessary or appropriate 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.

Can a foreign company invest in the Philippines?

Yes. The Foreign Investment Act allows the entry of foreign investment into the Philippines. Under this law, foreign investors must register with the Securities and Exchange Commission (in the case of a corporation or partnership) or with the Department of Trade and Industry’s Bureau of Trade Regulation and Consumer Protection (in the case of a sole proprietorship)

What is the percentage of foreign equity allowed under the Foreign Investment Act?

With the relaxation of the foreign investment law, 100% foreign equity may be allowed in all areas of investment except those reserved for Filipinos under the Philippine Constitution and existing laws.

What are these restrictions?

The Foreign Investment Act (FIA) provides for two negative lists, also known as the “Foreign Investment Negative List”, which defines the foreign investments, which are limited or restricted by the Constitution and specific laws.

In Negative List A, foreign ownership in certain businesses is limited by mandate of the Constitution and specific laws. These are:

No Foreign Equity

1. Mass Media except recording
2. Practice of professions
3. Retail trade enterprises with paid-up capital of not less than US$2,500,000.00
4. Cooperatives
5. Private Security Agencies
6. Small-scale Mining
7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone
8. Ownership, operation and management of cockpits
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personal mines
11. Manufacture of firecrackers and other pyrotechnic devices

Up to Twenty Percent (20%) Foreign Equity

12. Private radio communication network

Up to Twenty-Five Percent (25%) Foreign Equity

13. Private recruitment, whether for local or overseas employment
14. Contracts for the construction and repair of locally-funded public works, except:
15. Infrastructure/development projects covered in RA 7718; and
16. Projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec. 2(a) of RA 7718)
17. Contracts for construction of defense-related structure

Up to Thirty Percent (30%) Foreign Equity

16. Advertising

Up to Forty Percent (40%) Foreign Equity

17. Exploration, development and utilization of natural resources
18. Ownership of Private Lands
19. Operation and management of public utilities
20. Ownership/establishment and administration of educational institutions
21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the byproducts thereof
22. Contracts for the supply of materials, goods and commodities to government owned or controlled corporation, company, agency or Municipal Corporation
23. Project Proponent and facility Operator of a BOT project requiring a public utilities franchise
24. Operation of deep-sea commercial fishing vessels
25. Adjustment Companies
26. Ownership of condominium units where the common areas in the condominium projects are co-owned by the owners of the separate units or owned by a corporation

Up to Sixty Percent (60%) Foreign Equity

27. Financing companies regulated by the Securities and Exchange Commission
28. Investment houses regulated by the SEC

In Negative List B, foreign ownership in certain business is limited for reason of security, defense, risk to health and morals and protection of small-and medium scale enterprises. These are:

Up to Forty Percent (40 %) Foreign Equity

1. Manufacture, repair, storage and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:

1. Firearms (handguns to shotguns), parts of firearms and ammunition therefore, instruments or implements used or intended to be used in the manufacture of firearms
2. Gunpowder
3. Dynamite
4. Blasting supplies
5. Ingredients used in making explosives
6. Telescopic sight, sniper scope and other similar devices
7. Manufacture, repair, storage and/or distribution of products requiring

Department of National Defense (DND) clearance;

1. Guns and ammunition for warfare
2. Military ordnance and parts thereof (e.g., torpedoes, depth charges,  bombs, grenades, missiles)
3. Gunnery, bombing and fire control systems and components
4. Guided missiles/missile systems and components
5. Tactical aircraft (fixed and rotary -winged), parts and components thereof
6. Space vehicles and component systems
7. Combat vessels (air. land and naval) and auxiliaries
8. Weapons repair and maintenance equipment
9. Military communications equipment
10. Night vision equipment
11. Stimulated coherent radiation devices, components and accessories
12. Armament training devices
13. Others as may be determined by the Secretary of the DND
14. Manufacture and distribution of dangerous drugs
15. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals
16. All forms of gambling, e.g. lottery games, race track operation, etc.
17. Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
18. Domestic market enterprises, which involve advanced technology or employ at least 50 direct employees with paid-in-equity capital of less than the equivalent of US$100,000

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Choosing the form of business depends on different factors–the number of parties, extent of liabilities and responsibilities.

What are the different business registration models?

Single/Sole Proprietorship, Partnership, and Corporation 

What is a Single Proprietorship?

Sole Proprietorship is the most basic form of business. It is owned by an individual who has full control of its own and owns all assets. The owner is also personally answers to all liabilities or losses. Meaning, creditors may proceed not only against the assets and property of the business but also after the personal properties of the owner. A sole proprietorship does not possess a juridical personality, the law treats the owner and the business as one and the same.

What is a Partnership?

By the contract of Partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. The Partnership has a juridical personality separate and distinct from that each of the partners. There two kinds of Partnerships, general and limited. The liabilities of partners in a partnership would depend whether the partnership is general or limited. In general partnerships, the extent of liabilities of the partners shall extend to their personal properties, much like in sole proprietorship. While in a limited partnership, the extent of the liabilities shall only extend only up to the amount of their share in the contribution in the partnership.

What is a Corporation?

A corporation is a separate juridical entity established under the Corporation Code that is distinct from its owners or incorporators. Being a separate juridical entity, it has rights and obligations like that of an individual. A corporation is formed by a number of natural persons not less than five (5) but not more than fifteen (15), all of legal age. The extent of liability is limited only to the corporation; Owners are not personally liable

The ownership of a corporation is divided into shares of stock. A corporation issues the stock to individuals or other business, who then become owners or stockholders, of the corporation.

Business Registration Process in the Philippines

In setting up a business, there are several government agencies one has to register depending on the type of business or legal form one is engaging. It is necessary for one to register one’s business to enjoy exclusive rights over the name of the business. For Single Proprietorship, businesses can be registered at any DTI Regional or Provincial office. For Partnership or Corporations, it is essential to register with the Securities and Exchange Commission.

REQUIREMENTS

LOCAL GOVERNMENT

All businesses, whatever legal form, are required to secure a mayor’s permit or municipal license from the city or municipality where they are located. Permits or licenses are required to ensure that the standards are met and that business complies with the specific requirements of the business locale. Registration requirements and procedure varies across cities and municipalities.

The post How to start a business in the Philippines? appeared first on Peralta Jimenez Law Firm.