February 1, 2018 TSN

Take a look at the provisions on how we register foreign

corporations; you will see that it is much more
cumbersome that is practical and less expensive to
organize than the domestic corporation.

Section 125 is a kilometric provision. It is longer than

section 6. It speaks of the application of a license to be
a foreign corporation.

It provides for the date and term, the application to be
filed under oath. 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;
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
6. The names and addresses of the present directors
and officers of the corporation.. etc.
You have to file your certificate of incorporation and by-
law then, you have to put up a bond. How much is the
bond? Initially 100 thousand pesos under Section 26
2nd Paragraph.
Sec. 125. Application for a license. - 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. 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.
Attached to the application for license shall be a duly executed
certificate under oath by the authorized official or officials of the
jurisdiction of its incorporation, attesting to the fact that the laws
of the country or state of the applicant allow Filipino citizens and
corporations to do business therein, and that the applicant is an
existing corporation in good standing. If such certificate is in a
foreign language, a translation thereof in English under oath of
the translator shall be attached thereto.
The application for a license to transact business in the
Philippines shall likewise be accompanied by a statement under
oath of the president or any other person authorized by the
corporation, showing to the satisfaction of the Securities and
Exchange Commission and other governmental agency in the
proper cases that the applicant is solvent and in sound financial
condition, and 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.
market. After filing the initial bond worth 100 thousand,
within six (6) months after each fiscal year of the
licensee, the Securities and Exchange Commission shall
require the licensee to deposit additional securities
equivalent in actual market value to two (2%) percent of
the amount by which the licensee's gross income for that
fiscal year exceeds five million (P5,000,000.00) pesos.
Gross income is your sales and revenues. The moment
you exceed it exceeds 5 million, your initial 100thousand
bond is not enough. You have to put an additional bond
of at least 2 % of the excess.
Now, it says that if the value of your bond decreases in
market value, you have to put an additional bond.
Let us say your bond is the original bond is a stock
certificate of PLDT and you put it up as 3 thousand
pesos. Now, the share of stock of PLDT is not even 1500
or 1600. So the opposal value is by 50%. You have to
add additional security. So, very cumbersome.
That is why legally, it is a benefit business to have a
warehouse corporation. That is the bread and butter of
the big law firms like Sycip Salazar, Corpuz Masanta.
They have this wareouse corporation.
EXAMPLE: Coca-cola na planta. It supplies Coca-cola
bottling here in the Philippines, the syrup for Coke. And
you pay for that plus royalties. You can choose to
operate here as a foreign corporation or make your own
corporation.
If you are operating here as a foreign corporation, it will
be Coca-cola Atlanta Incorporated in Delaware. Your
business here is the sale of Coca-cola syrup. Unsa man
nang syrup? Kita ka anang sa Tibungco nang mga van
nga blue mao na. la-i-non man na pag padala diri aron
mix na lang. kanang Coca-cola Bottling lain man na na
kumpanya, mao nay mudistribute man.
Is CC Atlanta registered here as a foreign
corporation? NO. nag buhat na silag sariling
corporation kanang Coca-cola Philippines Export
Import Corporation. Pangita-a na sa SEC 500. SEC
annually issues the top 500 corporation. Now they added
the next 500 so it is the top 1000.
Naa dinha ang Coca-cola Import Export Corporation.
Dako man kaayo na but it is just a shoebox in Sycip
Salazar Gaitmaitan Law Office. All those people in the
bottling company traded and they remit it to Coca-cola.
It’s called import export. They import it and sell it to
Coca-cola bottling. It is an import export company set up
here as a Philippine corporation because it is so
cumbersome to have a foreign licensed corporation.
Then you have to appoint a resident agent and finance
na sad na nimo and you have to execute an undertaking
that says that if the resident agent is somehow
Sec. 126. Issuance of a license. - If the Securities and
Exchange Commission is satisfied that the applicant has
complied with all the requirements of this Code and other
special laws, rules and regulations, the Commission shall issue
a license to the applicant to transact business in the Philippines
for the purpose or purposes specified in such license. Upon
issuance of the license, such foreign corporation may
commence to transact business in the Philippines and continue
to do so for as long as it retains its authority to act as a
corporation under the laws of the country or state of its
incorporation, unless such license is sooner surrendered,
revoked, suspended or annulled in accordance with this Code
or other special laws.
Within sixty (60) days after the issuance of the license to
transact business in the Philippines, the license, except foreign
banking or insurance corporation, shall deposit with the
Securities and Exchange Commission for the benefit of present
and future creditors of the licensee in the Philippines, securities
satisfactory to the Securities and Exchange Commission,
consisting of bonds or other evidence of indebtedness of the
Government of the Philippines, its political subdivisions and
instrumentalities, or of government-owned or controlled
corporations and entities, shares of stock in "registered
enterprises" as this term is defined in Republic Act No. 5186,
shares of stock in domestic corporations registered in the stock
exchange, or shares of stock in domestic insurance companies
and banks, or any combination of these kinds of securities, with
an actual market value of at least one hundred thousand
(P100,000.) pesos; Provided, however, That within six (6)
months after each fiscal year of the licensee, the Securities and
Exchange Commission shall require the licensee to deposit
additional securities equivalent in actual market value to two
(2%) percent of the amount by which the licensee's gross
income for that fiscal year exceeds five million (P5,000,000.00)
pesos. The Securities and Exchange Commission shall also
require deposit of additional securities if the actual market value
of the securities on deposit has decreased by at least ten (10%)
percent of their actual market value at the time they were
deposited. The Securities and Exchange Commission may at its
discretion release part of the additional securities deposited
with it if the gross income of the licensee has decreased, or if
the actual market value of the total securities on deposit has
increased, by more than ten (10%) percent of the actual market
value of the securities at the time they were deposited. The
Securities and Exchange Commission may, from time to time,
allow the licensee to substitute other securities for those
already on deposit as long as the licensee is solvent. Such
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 to the satisfaction of the Securities and
Exchange Commission that the licensee has no liability to
Philippine residents, including the Government of the Republic
of the Philippines. (n)
After you have set up a bond which can be in cash or in
acceptable securities like government bonds,
treasury bills or shares of stock traded in the stock
Sec. 134. Revocation of license. - Without prejudice
to other grounds provided by special laws, the license
of a foreign corporation to transact business in the
Philippines may be revoked or suspended by the
Securities and Exchange Commission upon any of the
following grounds:
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, after change of its resident agent or of his
address, to submit to the Securities and Exchange
Commission a statement of such change as required
by this Title;
Imagine that if you fail to report something your license
can be revoked as a foreign corporation under
Philippine Laws.
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)
There are nine grounds and the 9th ground is the most
comprehensive which says “Any other ground as
would render it unfit to transact business in the
Philippines”
Any other ground. This is all-embracing. If you are unfit,
kinsa man muingon na unfit ka?
Now if you withdraw, there is also a process. You have to
secure a certificate of withdrawal from the SEC.
incapacitated, it has to prove its capacity as a resident
agent. Then your default resident agent is the Securities
and Exchange Commission.
Sec. 127. Who may be a resident agent. - A resident agent
may be either an individual residing in the Philippines or a
domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he must
be of good moral character and of sound financial standing. (n)
Who may be a resident agent? Resident agent service
of process.
What is the concept of a resident agent? Since you are
not domiciled here as a resident corporation, it is the
resident agent which will receive the processes of the
law. If you are given a notice, it is given to the resident
agent corporation. If you are sent summons by the court,
it is the resident agent that is the entity which you will
serve summons. Service to the resident agent is service
to the foreign corporation.
If you make amendments in a contract, you have to
inform the SEC of the equivalent amendment. If there is
a merger or consolidation that happens abroad, you
have to again inform the SEC about the particular
process and the result of the merger or
consolidation. So it is very cumbersome. That is why it
is easier to put up a Philippine corporation or a domestic
corporation if you are a foreign corporation. You get
lawyers and pay them; they will do the work for you. The
capital can be owned 100% foreign corp. why? They do
not need that. It’s just a shoebox in the office of the
employer. Of course, you have to pay the lawyer and
that is the steady income of the law firm.
There is also a process of recognition and revocation of
a license. Its grounds are found in Sec. 134.
works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the
purpose and object for which the corporation was
organized.”
This has led the SC in later cases say that the dual test.
There are two tests to determine what doing
business is.
1.
Substance test
2.
Continuity test
What is the substance test? SC says “The true test,
however, seems to be whether the foreign corporation is
continuing the body or substance of the business or
enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another.”
Naga export ka diris Philipines pero nay mudawat na
distributor. Nag appoint kag distributor. Is that doing
business in the Philippines? Unless it is proven that the
distributor is fully under the control of the exporter
abroad, it is not doing business in the Philippines. The
distributor might be distributing other products and it
might be a separate and distinct corporation of its own. It
might be already conducting its own business and not
that of the exporter. The mere fact of exporting is not
doing business.
What is the continuity test? The 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 for which the corporation was
organized.
Continuity test means that there are several acts which
are continuous to the purpose and goal of the foreign
corporation. Continuity and if not for that one act then it
is not doing business.
That was the basis of the SC when it said that when the
foreign corporation has entered into a lease contract for
an office, not the office for which the distributor has
used, but its own office. The foreign corporation itself
signed the contract that it is going to be their office. That
is intent to start a business. Continuity of works. It might
be a single transaction that is doing business. Again, the
SC said Corporation Code of the Philippines, is
silent as to what constitutes doing or transacting
business in the Philippines. Fortunately,
jurisprudence has supplied the deficiency.
That was an old ruling of the SC. There is already a law
passed. RA 7042 otherwise known as the Foreign
Investment Act of 1991. There is a definition there for
doing business. What is it? (copied from the MR Holding
case earlier cited)
Sec. 136. Withdrawal of foreign corporations. - Subject
to existing laws and regulations, a foreign corporation
licensed to transact business in the Philippines may be
allowed to withdraw from the Philippines by filing a
petition for withdrawal of license. No certificate of
withdrawal shall be issued by the Securities and
Exchange Commission unless all the following
requirements are met;
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.
You must show proof of the following:
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
This is not used to much because it is much simpler to
form. Nevertheless, there are several decided cases.
They normally focus on a foreign corporation’s ability or
capacity to sue and be sued.
There are also foreign corporations which are not
registered and they sue in the Philippines. It is claimed
that they are doing business but they deny the decision
of the Supreme Court.
The whole issue hinges on WHAT IS DOING
BUSINESS? What is the definition of doing
business?
The decided case for this is Agilant Technologies
Singapore Ltd vs. Integrated Technologies
Philippines. 427 SCRA 593.
As to the question, what is doing business? The SC in
MR Holding vs. Bajar 180 SCRA 617 said “The
Corporation Code of the Philippines, is silent as to what
constitutes doing or transacting business in the
Philippines. Fortunately, jurisprudence has supplied the
deficiency and has held that the term implies a continuity
of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or
investment. That is a new decision. Sa basketball pa,
wa pa ka mushoot andam na ka pero bench pa ka
andam na ka muduwa.
Is that fair? Ang malipay ni-ini ang Sycip Salazar etc kay
shoebox ra may ilaha nya income na sad. Intellectual
property ba, Coca-cola registered man na dinhis ato.
Coca-cola Import Export ang registered owner ana
tanawa pa nang lubot sa Coca-cola nay PATREO-
Patent Registry Office. Walay ana ang can. That is why
top 20 ang CCIE Corporation sa SEC of the SEC 1000,
500. Check SEC.com.ph. apil ang NCCC Top 100 baya
na mas dako pas burger king pero ambot lang karon kay
tungod anang sunog they are not doing business.
Some case given of consignee of cargo where the cargo
is for transit and took cargo into another destination.
Mayan Ship, transport to the US, passed through in the
Philippines for Vietnam. Nagubot ang cargo diris
Philippines, ang tag-iya sa cargo gi assign ni ya iyang
insurance sa cargo to another corporation somewhere in
the US. Kiha siyan diris Philippines ingon siya invalid
cause of action, dinhi nahitabo sa Philippines. Kanang
crane niya naputol kanang mga refrigerator didto wala
na. it is insured so one the original indorsee or assignee
by the discounting kanang mga kumpanya na mudawat
ug insurance liabilities. Let’s say rediscount ka, 30%
makuha nimo and satisfied ka. Dinhi nahitabo sa
Philippines nakapark dinha.
Can you sue? You took the place of the owner as the
owner of the goods. Is that doing business? That is a
single isolated transaction which is not doing business.
But if you pay to establish a corporate character of
foreign corporations. The SC says that is fathom. Dili ka
kalusot. The old doctrine says the isolated transaction
everybody knows that diba. If you pay to allege and
establish the corporate character as foreign corporations
then you lose the case on technicality. SC says a foreign
corporation not engaged in the business in the
Philippines may not be denied of their right to file an
action in the Philippine courts for a time-isolated
transaction. But the isolation transaction rule refers only
to foreign corporations, the consignee failure to prove
the legal existence or juridical personality as foreign
corporation absent such proof they are far from invoking
the right to sue in the Philippine jurisdiction under the
isolated transaction rule since they do not qualify for the
availment of such. Commissioner of Customs vs.
KMK Gani Corporation 52 S 594 February 1990 (not
sure with citation ☹ inaudible) Jurisdictional- alleging
that you are a foreign corporation and proving that you
are a foreign corporation.
In a case where a corporation is foreign and has a
license to do business, but the complaint which the
corporation’s license to do business in the corporation is
filed; the complaint failed to allege that the plaintiffs were
foreign corporations duly licensed to transact business in
the Philippines. The action was dismissed on the ground
d) The phrase doing business shall include soliciting
orders, service contracts, opening offices, whether
called liaison offices or branches; appointing
representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the
country for a period or periods totalling one hundred
eight(y) (180) days or more; participating in the
management, supervision or control of any domestic
business, firm, entity, or corporation in the
Philippines; and any other 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 of the functions normally
incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the
business organization;
This answers the question you are a foreign company
and you communicate with a broker in Makati and you
say buy me Meralco and you buy Mercalco upto 4% of
the outstanding shares of Meralco with voting shares.
Foreigner ang muanhi kay muexercise sa vote. 4% of
the total shares of Meralco is already 1 billion pesos. Are
you doing business? Do not confuse the term stain(?)
economics to the term foreign investment. You buy from
the stock market that is foreign investment that is not
direct foreign investment. Direct foreign investment is
you put up a factory. If you put up assets that does not
define doing business.
Whether or not you are a direct investor or you are just
a stock market investor if you do not have a say in the
operations management who have made an investment
you are not doing business. That is the definition in RA
7042 “e term doing business in the same tenor as those
above-quoted, and as may be observed, one
common denominator among them all is the concept of
continuity.”
There is a new decision in this shoal in Palawan called
the Malampaya. Oil exploration when it happens, it is
always a consortium of oil companies. No oil company
can conduct an oil exploration by itself. Its very
expensive ug matumba na sakit kaayo. It always daghan
sila. Although there are many, it is always one who will
take the lead and it is always the one who normally the
biggest one na magdala. The question is, are those in
investment are they doing business? If you are not
involved in the operations, if you are not a service
contract or technical agreement, if you have no
certificate as a board of director, you are not doing
business because you are not involved in the business.
But what about a clause in the investment contract which
says you stand ready to provide whatever technical
assistance as maybe called upon for you to exercise all
management assistance or help should be needed by
the consortium. The interpretation of the SEC now is that
is doing business so therefore, you must apply foreign
of lack of capacity to sue. Was the dismissal correct?
Once again the SC says where the law denies a foreign
corporation to maintain a suit unless it has previously
complied with certain requirements, then such
compliance or exemption there from, becomes a
necessary averment in the complaint. The case was
properly dismissed. You have to allege in your complaint
that you are a foreign corporation that you have a
license and if you are suing as a foreign corporation,
license to do business.

If you are a foreign corporation availing the isolated

transaction rule you also have to aver that you are a
foreign corporation not licensed and you have to note
that you are a foreign corporation. Sayop nis mga
abogado. They should not be able to collect their
attorneys fees. Kay when it comes to the issue on
jurisdiction ignorance na. Ignorance of the law. Pasaka
lang ug complaint nya kuwang diay jurisdictional
averments.

Those are the thing you have to watch out for. The case
which contains a summary discussion of isolated
transaction is Agilant Technologies Singapore Ltd vs.
Integrated Silicon Philippines Corporation 427 SCRA
593 2004.
AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORP
et al
G.R. No. 154618
April 14, 2004

**The challenge to Agilent’s legal capacity to file suit hinges on

whether or not it is doing business in the Philippines. However,
there is no definitive rule on what constitutes “doing”, “engaging
in”, or “transacting” business in the Philippines. The Corporation
Code itself is silent as to what acts constitute doing or
transacting business in the Philippines.

[Jurisprudence has it, however, that the term “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 or
in progressive prosecution of the purpose and subject of its
organization.”

In the Mentholatum case this Court discoursed on the two

general tests to determine whether or not a foreign corporation
can be considered as “doing business” in the Philippines. The
first of these is the substance test, thus:

The true test [for doing business], however, seems to be

whether the foreign corporation is continuing the body of the
business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another.

The second test is the continuity test, expressed thus:

The term [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 the progressive
prosecution of, the purpose and object of its organization.]

**
The Foreign Investments Act of 1991 (the “FIA”; Republic Act
No. 7042, as amended), defines “doing business” as follows:

Sec. 3, par. (d). The phrase “doing business” shall include

soliciting orders, service contracts, opening offices, whether
called “liaison” offices or branches; appointing representatives
or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totaling
one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business,
firm, entity, or corporation in the Philippines; and any other 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 of the functions
normally incident to, and in the progressive prosecution of,
commercial gain or of the purpose and object of the business
organization.

An analysis of the relevant case law, in conjunction with Sec 1