Foreign Corporations
What acts of foreign corporation do not constitute as
What is a foreign corporation?
-One formed, organized, or existing
under laws other than the PH and whose laws allow
Filipino citizens and corporations to do business in its
own country. (RCC, Sec. 140)
What acts of a foreign corporation are included in
the phrase “doing business” in the PH?
1. Soliciting orders, service contracts, opening
offices, whether called “liaison” offices or
branches;
2. Appointing representatives or distributors
domiciled in the PH or who in any calendar
year stay in the country for a period totaling
180 days or more;
3. Participating in the management,
supervision or control of any domestic
business, firm, entity or corporation in the
PH; and
4. Any other act or acts that imply continuity
of commercial dealings or arrangements,
and contemplate to that extent the
performance of acts or works, or in 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.
(Foreign Investment Act, Sec. 3 (d))
What are the test on whether a foreign corporation is
doing business in the PH?
a. Substance Test – whether the foreign
corporation is maintaining or continuing in
the PH the body or substance of the
business for which it was organized or
whether it has substantially retired from it
and turned it over another; and
b. Continuity test – whether there is continuity
of commercial dealings and arrangements,
contemplating to some extent the
performance of acts or works or the
exercise of some functions normally incident
to and in progressive prosecution of, the
purpose and object of its organization.
(Agilent Technologies Singapore v.
Integrated Silicon Technology Phil. Corp.
GR 154618)
“doing business” in the PH?
1. Mere investment as a shareholder in a
domestic corporation and/or the exercise of
rights such as investor;
2. Appointing a representative or distributor in
the PH which transacts in its own name and
for its own account;
3. Publication of a general advertisement
through any print or broadcast media;
4. Maintaining a stock of goods in the PH
solely for the purpose of having the same
processed by another entity in the PH;
5. Having a nominee Director or officer to
represent its interest in such corporation;
6. Consignment by the foreign corporation of
equipment with a local company to be used
in the processing of products of export;
7. Collecting information in the PH;
8. Performing services auxiliary to an existing
isolated contract of sale which are not a
continuing basis.
(IRR Foreign Investment Act, Sec. 1)
What are the principles on the personality of a
foreign corporation to sue?
1. If a foreign corporation does business in the
PH without a license, it cannot sue before
the PH courts;
2. If a foreign corporation not doing business
in the PH it needs no license, to sue before
the PH courts on an isolated transaction or
on a cause of action entirely independent on
any business transaction;
3. If a foreign corporation does business in the
PH without a license, a PH citizen or entity
which has contracted with said corporation
may be estopped from challenging the
foreign corporation’s corporate personality
in a suit brought before PH courts;
4. If a foreign corporation does business in the
PH with the required license, it can sue
before the PH courts on any transaction;
(Agilent Technologies Singapore v.
Integrated Silicon Technology Phil. Corp.
GR 154618)
What is an isolated transaction?
 -The court has not construed the term “isolated
transaction” to literally mean one or a mere single act.
The phrase isolated transaction has a definite and fixed
meaning, i.e. a transaction or series of transaction set
apart from the common business of a foreign enterprise
in the sense that there is no intention to engage in
progressive pursuit of the purpose and object of the
business organization.
(Lorenzo Shipping Corp. v. Chubb and Sons, Inc. . GR
154618)
One Person Corporations
What is a One Person Corporation (OPC)?
- A corporation with a single stockholder.
(RCC, Sec. 116)
Who may from an OPC?
- Only a natural person, trust, or an estate may
form an OPC. (RCC, Sec. 166)
What is the rule regarding the bylaws of an OPC?
- Not required to submit and file corporate
bylaws. (RCC, Sec. 119)
What are the rules regarding the officers of the
OPC?
1. Within 15 days from the issuance of its
certificate of incorporation, the OPC shall
appoint a treasurer, corporate secretary, and
other officers as it may deem necessary;
2. The OPC shall notify the SEC thereof within
5 days from appointment of the officers;
3. The single stockholder may not be appointed
as the corporate secretary; and
4. A single stockholder who is likewise the
self-appointed treasurer of the corporation
shall:
a. Give a bond to the SEC in such a
sum as may be required;
b. Undertake in writing to faithfully
administer the OPC’s funds to be
received as treasurer, and to
disburse and invest the same
according to the AOI as approved
by the SEC;
c. Renew the bond every 2 years or as
often as may be required. (RCC,
Sec. 122)
Who are nominees and alternate nominees?
- Are those designated by the stockholder who
shall, in the event of the single stockholder’s
death or incapacity, take the place of the
single stockholder as director and shall
manage the corporation’s affairs. (RCC,
Sec. 124)
How may the OPC take action on any matter?
- When action is needed on any matter, it
shall be sufficient to prepare a written
resolution, signed and dated by the single
stockholder, and recorded in the minutes
book of the OPC. The date of recording in
the minutes book shall be deemed to be the
date of the meeting for all purposes under
this code. (RCC, Sec. 128)
What is the obligation of a single stockholder
claiming limited liability?
- He has the burden of affirmatively showing
that the corporation was adequately
financed. (RCC, Sec. 130)
When is a single stockholder solidarily liable with the
OPC?
- Where the single stockholder cannot prove
that the property of the OPC Is independent
of the stockholder’s personal property, the
stockholder shall be jointly and severally
liable for the debts and other liabilities of the
OPC. The principle of piercing the corporate
veil applies with equal force to an OPC.
(RCC, Sec. 130)
In what instance may an ordinary corporation be
converted into an OPC?
- When a single stockholder acquires all the
stock of an ordinary stock corporation, the
latter may apply for conversion into OPC,
 subject to the submission of such documents
as the SEC may require. (RCC, Sec. 131)
In what instance may an OPC be converted into an
ordinary corporation?
- After due notice to the SEC of such fact and
of the circumstances leading to the
conversion, and after compliance with all
other requirements for stock corporation
under this Code and appliable rules.
- In case of death of a single stockholder, the
legal heirs, within 60 days from the transfer
of shares by the nominee or alternate
nominee, shall notify the SEC of their
decision to either wind up and dissolve the
OPC or convert it into an ordinary stock
corporation. (RCC, Sec. 132)
MERGERS AND CONSOLIDATION
What is the procedure for merger and consolidation?
1. The BOD or BOT of each corporation shall
approve a plan of merger or consolidation;
2. The plan of consolidation or merger shall be
approved by majority vote of each of the
concerned corporations at separate meetings;
3. The plan of merger or consolidation shall be
approved by 2/3 of the OCS or members for
non-stock corporation;
4. An articles of merger or consolidation shall
be executed by each of the constituent
corporations, signed by the president or vp
and certified by the secretary or assistant
secretary of each corporation;
5. The articles of merger or consolidation shall
be submitted to the SEC for approval. A
favorable recommendation from the
appropriate government agency in certain
cases shall be obtained;
6. If the SEC is satisfied that the merger and
consolidation consistent with the RCC and
existing laws, it shall issue a certificate
approving the articles and plan of merger or
consolidation; and
7. If, upon investigation, the SEC has reason to
believe that the proposed merger or
consolidation is contrary to or inconsistent
with the provision of this Code or existing
laws, it shall set a hearing to give the
corporations concerned the opportunity to be
heard. (RCC, Sec. 75-78)
When is merger or consolidation deemed effective?
-The merger or consolidation shall only be
effective upon issuance by the SEC of a certificate
approving the articles of merger or consolidation. (RCC,
Sec. 78)
What is the limitation on mergers and acquisitions
under the PH Competition Act?
-Merger or acquisition agreements that
substantially prevent, restrict, or lessen competition in
the relevant market or in the market of goods or services
as may be determined by the PH Competition
Commission shall be prohibited. (PH Competition Act,
Sec. 20)
What are the effects of merger or consolidation?
1. The constituent corporations shall become a
single corporation;
2. The separate existence of the constituent
corporation shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated
corporation shall possess all the rights,
privileges, immunities and powers and shall
be subject to all the duties and liabilities of a
corporation organized under the RCC;
4. All real or personal property, all receivables
due on whatever account and every other
interest of, belonging to, or due to each
constituent, shall be transferred to and
vested in such surviving or consolidated
corporation without further act or deed;
5. The surviving or consolidated corporation
shall be responsible for all the liabilities and
obligations of each constituent corporation;
and
6. Any pending claim, action or proceeding
brought by or against any constituent
corporation may be prosecuted by or against
the surviving or consolidated corporation.
(RCC, Sec. 79)
FOREIGN INVESTMENTS ACT
1. Applicable Law
- It shall NOT apply to banking and other
financial institutions which are governed
and regulated by the General Banking Act
 and other laws under the supervision of the
Central Bank.
- The recent amendments to FIA under RA
11647 created the “Inter-Agency
Investment Promotion Coordination
Committee,” which shall be the body that
will integrate all promotion and facilitation
efforts to encourage foreign investments in
the country.
- Section 2. Declaration of Policy. - It is
the policy of the State to attract, promote
and welcome productive investments
from foreign individuals, partnerships,
corporations, and governments,
including their political subdivisions, in
activities which significantly contribute to
national industrialization and
socioeconomic development to the extent
that foreign investment is allowed in
such activity by the Constitution and
relevant laws.  entirely or if exporting a portion of its output
- fails to consistently export at least 60%
2. PH National
1. A citizen of the PH;
2. A domestic partnership or association
wholly owned by citizens of the PH; or
3. A corporation organized under laws of the
PH of which at least 60% of the capital
stock outstanding and entitled to vote is
owned and held by citizens of the PH;
4. A corporation organized abroad and
registered as doing business in the PH
under the Corporation Code of which 100%
of the capital stock outstanding and
entitled to vote is wholly owned by
Filipinos;
5. A trustee of funds for a pension or other
employee retirement or separation
benefits, where the trustee is a PH national
and at least 60% of the fund will accrue to
the benefit of PH nationals.
a. The rules that implement the SRC
defines beneficial owner as “any
person who, directly or indirectly,
through any contract, arrangement,
understanding, relationship or
otherwise, has or shares voting
power”
3. MEANING OF FOREIGN INVESTMENT
Investment shall mean equity
participation in any enterprise organized or
existing under the PH LAW
Foreign Investment an equity
investment made by a non-PH national in the
form of foreign exchange and/or other assets
actually transferred to PH and duly registered
with the Banko Central ng Pilipinas.
Export enterprise – an enterprise
wherein a manufacture, processor or service
enterprise exports 60% or more of its output,
or wherein a trader purchases products
domestically and exports 60% or more of such
purchases.
Domestic market enterprise – an
enterprise which produces foods for sale, or
renders services to the domestic market
thereof.
Foreign Investment Negative List
This shall mean a list of areas of
economic activity whose foreign ownership is
limited to a maximum of 40% of the equity
capital of the enterprises engaged therein.
Revisions shall not be made more often than
once every two years.
4. Registration of Investment
a. Non PH national may do business in
the PH without need of prior approval
unless the business is wholly or partly
nationalized.
b. Wholly or partly nationalized means
participation of non-PH national in the
enterprise is prohibited or limited to a
smaller percentage by exiting law.
c. Corporations must secure a license to
do business from the SEC, if it wants to
do business on the PH. On the other
hand, single proprietorship must
register with the Department of Trade
and Industry.
d. Non-PH nationals may also invest in a
domestic enterprise up to 100% of its
capital, unless partly or wholly
 nationalized. The SEC or the DTI, s the
case may be shall not impose any
limitations on the extent of foreign
ownership in an enterprise additional to
those provided in FIA.
e. A non-PH national intending to engage
in the same line of business as an
existing joint venture, in which he or his
majority shareholder is a substantial
partner, must disclose the fact and the
names and addresses of the partners
in the existing joint venture in his
application for registration.
5. Export and Domestic Enterprises
Export enterprise – an enterprise wherein a
manufacture, processor or service enterprise
exports 60% or more of its output, or wherein
a trader purchases products domestically and
exports 60% or more of such purchases.
- Register to BOI and submit reports as
required.
- The SEC or the DTI in case of sole
proprietorship shall order the non-
complying export enterprise to reduce sales
to the domestic market to not more than
40% of its total production.
Domestic market enterprise – an enterprise
which produces foods for sale, or renders
services to the domestic market entirely or if
exporting a portion of its output fails to
consistently export at least 60% thereof.
Foreign Investment in Export Enterprise - Non-
PH nationals may also invest in a domestic
enterprise up to 100% of its capital, unless
partly or wholly nationalized.
Foreign Investment in Domestic Enterprise -
Non-PH nationals may also invest in a domestic
enterprise up to 100% of its capital, unless
partly or wholly nationalized. Or when excluded
under the Constitution or the Negative List
6. Foreign Investment Negative List
This shall mean a list of areas of economic
activity whose foreign ownership is limited to a
maximum of 40% of the equity capital of the
enterprises engaged therein. Revisions shall not be
made more often than once every two years.
a) The Foreign Investment Negative List has two
component Lists: A and B
(1) List A (FOREIGN OWNERSHIP IS LIMITED BY
MANDATE OF THE CONSTITUTION AND SPECIFIC
LAWS) shall enumerate the areas of activities reserved
to PH nationals by mandate of the Constitution and
specific laws:
I. Mass Media except recording and
internet business;
II. Practice of Profession, except in cases
specifically allowed;
III. Retail Trade enterprise with paid-up
capital of less than P25,000,000
IV. Cooperatives, except investments of
former natural born citizens of the PH
(2) List B (FOREIGN OWNERSHIP IS LIMITED
FORE REASONS OF SECURITY, DEFENSE, RISK TO
HEALTH and MORALS and PROTECTION OF SMALL AND
MEDIUM SCALE ENTERPRISES) shall contain the areas
of activities and enterprises regulated pursuant to law.
b) The different percentages of allowed foreign
equity as summarized in the Negative List are set forth
elsewhere in this Part III of this Book. It should also be
noted that a recent special law, RA 10881, lifted the
ceiling for foreign ownership in certain enterprises; thus
the ff may be 100% owned:
12th regular foreign investment negative list
(1) Adjustment Companies
(2) Investment Houses – Foreign nationals may
become members of the BOD to the extent of the
foreign participation in the equity of said enterprise.
(3) Lending Companies – A lending company,
more than 40% of whose capital is owned by foreign
nationals, may bid and take part in any sale of such land
as a consequence of such mortgage avail of
enforcement proceedings, take possession and transfer
their rights to qualified PH nationals for a period nor
exceeding 5 years from actual possession.
 (4) Financing Companies – Subject to the power
of the SEC to adjust, financing companies shall have a
paid up capital of (1) not less than P10,000,000 in case
of financing company located in MM and other first
class cities; (2) P5,000,000 in other classes of cities and
P2,500,000 in municipalities.
7. Investment Rights of Former Natural-Born
Filipinos
- Former natural born citizens of the PH shall
have the same investment rights of the PH citizens in:
(1) Cooperatives;
(2) Rural Banks;
(3) Thrift Banks and Private Development Banks;
(4) Financing Companies.
- Investments rights shall not extend to
activities reserved by the Constitution, including (1) the
exercise of profession, (2) in defense-related activities
unless specifically authorized by the Secretary of
National Defense, (3) activities covered by the Retail
Trade Act, (4) Security Agency Act, (5) Small Scale
Mining Act, (6) Rice and Corn Industry Act, (7) Cockpits
Operation and Management.
Land Ownership of Former Natural-Born Filipinos
- Any natural born citizen who has lost his PH
citizenship and who has legal capacity to enter into a
contract under the PH laws may be transferee of a
private land up to the maximum area of:
(1) 5,000 SQM in case of Urban Land;
(2) 3 hectares in the case of Rural Land to be
used by him for business or other purposes.
8. Administrative Sanction
- A person who violates any provision of the FIA
or of the T and Cs of registration or of the rules and
regulations issued pursuant thereto, or aids or abets in
any manner any violation shall be subject to a fine by
the SEC in the amount not exceeding P100,000.
- If the offense is committed by a juridical
entity, it shall be subject to a fine in an amount not
exceeding ½ of 1% of total paid-in capital but not more
than P5,000,000. The president and/or officials
responsible therefor shall also be subject to a fine not
exceeding P200,000.
- In addition to the foregoing, any person, firm
or juridical entity involved shall be subject to forfeiture
of all benefits granted under the FIA.
PUBLIC SERVICE ACT
Critical Infrastructure refers to any public service
which owns, uses, or operates systems and
assets, whether physical or virtual, so vital to the
Republic of the Philippines that the incapacity or
destruction of such systems or assets would have
a detrimental impact on national security, including
telecommunications and other such vital services as
may be declared by the President of the Philippines;
Foreign State-owned Enterprise refers to an entity
in which a foreign State:
(i) directly or indirectly owns more than fifty-
percent (50%) of the capital taking into
account both the voting rights and beneficial
ownership;
(ii) control, through ownership interests,
the exercise of more than fifty percent
(50%) of the voting rights; or
(iii) holds the power to appoint a majority
of members of the board of directors or any
other equivalent management body;
National Security refers to the requirements and
conditions necessary to ensure the territorial
integrity of the country and the safety, security,
and well-being of Filipino citizens;
Investments by an Entity Controlled by or Acting
on Behalf of the Foreign Government, or Foreign
State-owned Enterprises. - An entity controlled by or
acting on behalf of the foreign government or foreign
state-owned enterprises shall be prohibited from
owning capital in any public service classified as
public utility or critical infrastructure: 
Provided, That the prohibition shall apply only to
investments made after the effectivity of this Act: 
Provided, further, That foreign state-owned
enterprises which own capital prior to the effectivity of
this law are prohibited from investing in additional
capital upon the effectivity of this Act: 
Provided, finally, That notwithstanding the
immediately preceding clause, the sovereign wealth
funds and independent pensions funds of each state
may collectively own up to thirty percent (30%) of the
capital of such public services.
HERBOSA CASE – full beneficial ownership of the
stocks coupled with voting rights is essential. (In
the book) FIA
Reciprocity Clause. - Foreign nationals shall not be
allowed to own more than fifty percent (50%) of
the capital of entities engaged in the operation
and management of critical infrastructure unless
the country of such foreign national accords
reciprocity to Philippine Nationals as may be
provided by foreign law, treaty or international
agreement. Reciprocity may be satisfied by according
rights of similar value in other economic sectors. The
NEDA shall promulgate rules and regulations for this
purpose.
HOW IS IT EFFECTED?
Section 19. Unlawful act. - It shall be unlawful for
any public service:
"x x x
"(c) To refuse or neglect, when requested by the
Postmaster General or his authorized representative,
to carry public mail on the regular trips of any public
land transportation service maintained or operated by
any such public service, upon such terms and
conditions and for a consideration in such amounts as
may be agreed upon between the Postmaster
General and the public service carrier or fixed by the
Commission in the absence of an agreement between
the Postmaster General and the carrier. In case the
Postmaster General and the public service carrier are
unable to agree on the amount of the compensation
to be paid for the carriage of the mail, the Postmaster
General shall forthwith request the Commission to fix
a just and reasonable compensation for such carriage
and the same shall be promptly fixed by  the
Commission in accordance with section sixteen of this
Act.
"(d) To refuse or neglect, when requested by the
Administrative Agency to urgently use, deliver or
render the public service for the purpose of avoiding
further loss on human, material, economic, or
environment during a state of calamity."
Section 23. Powers of the President to Suspend
or Prohibit Transaction or Investment. - In the
interest of national security, the President, after
review, evaluation and recommendation of the
relevant government department or Administrative
Agency, may, within sixty (60) days from the receipt
of such recommendation, suspend or prohibit any
proposed merger or acquisition transaction, or any
investment in a public service that effectively results
in the grant of control, whether direct or indirect, to a
foreigner or a foreign corporation.
The Philippine Competition Commission (PCC) may
be consulted on all matters relating to mergers and
acquisitions.
The NEDA shall promulgate rules and regulations to
implement the provisions of this section.
Section 24. Investments by an Entity Controlled
by or Acting on Behalf of the Foreign
Government, or Foreign State-owned
Enterprises. - An entity controlled by or acting on
behalf of the foreign government or foreign state-
owned enterprises shall be prohibited from owning
capital in any public service classified as public utility
or critical infrastructure: 
Provided, That the prohibition shall apply only to
investments made after the effectivity of this
Act: Provided, further, That foreign state-owned
enterprises which own capital prior to the effectivity of
this law are prohibited from investing in additional
capital upon the effectivity of this Act: 
Provided, finally, That notwithstanding the
immediately preceding clause, the sovereign wealth
funds and independent pensions funds of each state
may collectively own up to thirty percent (30%) of the
capital of such public services.
In the interest of national security, an entity controlled
by or acting on behalf of the foreign government or
foreign-owned enterprises shall not make any date or
information disclosure, nor extend assistance, support
or cooperation to any foreign government,
instrumentalities or agents.
The NEDA shall promulgate rules and regulations to
implement the provisions of this section.
1. Public Service Act
1.01 Public Service Commission
Declaration of Policy. - The State recognize
the role of the private sector as one of the
main engines for national growth and
development.
It is hereby declared the policy of the State to
encourage private enterprise and expand
the base of investment in the country, with
the goal of providing efficient, reliable and
affordable basic services to all.  Service
- The Commission shall have jurisdiction
and supervision over all public services,
including public utilities, and their franchises,
equipment, and other properties, and in the
exercise of its authority, it shall have the
necessary powers and aid of public force.
- Public services, including public utilities
owned or operated by government entities or
GOCCs shall be regulated by the Commission in
the same way as privately-owned public
services.
1.02 Government Agencies that Replaced the
Public Service Commission.
- All reference to the Public Service
Commission shall pertain to any
Administrative Agency to which the powers
and duties of the PSC were transferred by
subsequent laws, such as but not limited to:
(1) Civil Aeronautics Board;
(2) Civil Aviation Authority of the
Philippines;
(3) Department of Energy;
(4) Department of Environment and
Natural Resources;
(5) Department of Information and
Communications Technology;
(6) Department of Transportation;
(7) Energy Regulatory Commission;
(8) Land Transportation Franchise
Regulatory Board;
(9) Land Transportation Office;
(10) Local Water Utilities Administration
(LWUA)
(11) Maritime Industry Authority (MARINA)
(12) Metropolitan Waterworks and
Sewerage System (MWSS);
(13) National Telecommunications
Commission;
(14) National Water Resources Board;
(15) Philippine National Railways;
(16) Philippine Ports Authority;
(17) Toll Regulatory Board
1.03 Meaning of Public Utility and Public
Public Service – includes every individual,
co-partnership, association, corporation, or
joint-stock company, whether domestic or
foreign, their lessees, trustees or receivers
appointed by any court whatsoever, or any
municipality or province, or other
department of the Government of the
Philippines, that now or hereafter may
own operate, manage , or control in the
PH, for hire or for compensation, any
common carrier, railroad, street railway,
traction railway, subway, freight and/or
passenger motor vehicles, with or without
fixed route, freight or any other car
service, express service, steamboat or
steamship line, ferries, small water craft,
such as lighters, pontines, lorchas, and
others engaged in the transportation of
passengers or cargo, shipyard, marine
railway, marine repair shop, public
warehouse, wharf, or dock not under the
jurisdiction of the Insular Collector of
Customs, ice, refrigeration, canal,
irrigation, pipe line, gas, electric light heat,
power water, oil sewer, telephone, wire or
wireless telegraph system, plant or
equipment and broadcasting stations,
when owned, operated, and managed or
controlled for public use or service within
the PH, whether the owner or operator be
an individual, co-partnership, association,
corporation or joint stock company, either
domestic or foreign, or a trustee or
receiver appointed by any court
whatsoever, or any municipality, province,
or other department of the Government of
the PH, or any other entities.
Public Utility – refers to a public service
that operates, manages, or controls for
public use any of the following:
(1) Distribution of Electricity;
(2) Transmission of Electricity;
(3) Petroleum and Petroleum Products
Pipeline Transmission Systems;
 (4) Water Pipeline Distribution System and
Wastewater Pipeline Systems, including
sewerage pipeline systems;
(5) Seaports; and
(6) Public Utility Vehicles.
The ff. are public utilities and are subject to the
requirement at least 60% of their capital stock must be
owned by Filipinos.
- Not all public services are public utilities. No
other person shall be deemed a public utility
unless otherwise subsequently provided by
law. Public Services that are not classified
as Public Utility shall be considered business
affected with public interest. They must still
from the Commission secure the certificate
or franchise to operate
- It follows, however, that a public service
that is not a public utility is not subject to
the constitutional provision requiring
Filipino ownership of 60% of its OCS.
1.04 Conditions Must Concur in the Grant of
CPC (and Necessity)
(1) The grantee must be a corporation
or entity 60% of which is owned by
Filipino citizens if the public service is a
public utility;
(2) The grantee must have sufficient
financial capability to undertake the
service; and
(3) The service will promote public
interest in a proper and suitable
manner.
1.05 Is a CPC property in the hands of the
holder thereof?
- No. It is a mere license or a privilege and
being neither a franchise nor a contract, it
confers no vested or property right or
interest to the holder.
- However, in its purely private aspect, it has
value and may be considered property that
can be levied upon by a judgment creditor
of the holder.
1.06 CPC and CPCN
- The former is any authorization to operate
public service issued by the PSC for which
no franchise, either municipal or legislative,
is required by law. The latter requires prior
legislative or municipal franchise.
1.07 Prior or Old Operator Rule
- The law contemplates that the first licensee
will be protected in his investment and will
not be subjected to ruinous competition.
- The PSC will not issue a CPC to a second
operator when a prior operator is rendering
sufficient, adequate and satisfactory
service, and who in all things and respects is
complying with the rules and regulations of
the commission.
1.08 Grounds for revocation of CPC
(1) The holder violates or continuously
refuses to comply with any order or rule or
regulation of the Commission;
(2) The holder is a mere dummy;
(3) The holder ceases operation or
abandons service.
1.09 Notice and Hearing Required
1) Issuance of the CPC;
2) Fixing and determination of fair and
reasonable individual rates;
3) Fixing of standards and qualifications;
4) Fixing of standards for measuring
quantity;
5) Establishment of rules to secure
accuracy of all meters and all measuring
appliances;
6) Order to compel operators to furnish
proper, safe and adequate service;
7) Allowing extension of facilities;
8) Fixing and determination of proper and
adequate rates of depreciation of the
property of any public service;
9) Imposition of Administrative Fines for
violations of conditions in the CPC.
No notice and hearing required
 1) To investigate any matter concerning
any public service as regards matters
under its jurisdiction
2) To require any public service to furnish
safe, adequate, and proper service;
3) To enforce compliance with any
standard rule and regulation;
4) To prohibit any public service from
operating without having first secured a
CPC;
5) Require to pay actual expenses incurred
by the Commission in any investigation;
6) To require any public service to keep
books, records, and accounts;
7) To appraise the value of the properties
of the public service;
8) To examine and test measuring
appliances;
9) To grant special permits to make extra
or special trips in territories not specified in
the CPC;
10) To investigate accidents that may
occur on the property of the public service;
11) To compel compliance with the laws
and regulations
1.10 Franchise
- Includes authorizations issuing directly from
Congress in the form of statute, but also
those granted by administrative agencies to
which the power to grant franchises has
been delegated by Congress.
1.11 Bases for Regulation of Public Utilities
- Founded upon the police power of the state
and statutes prescribing for the rules for the
control and regulation of public
convenience.
1.12 Regulation Rates
- The State protects the public against
arbitrary and excessive rates while
maintaining the efficiency and quality of
services rendered.
- In fixing rates, the only standard which the
legislature is required to prescribe for the
guidance of the administrative authority in
fixing the rate to be imposed by public
utilities is that the rate be reasonable and
just.
1.13 Acts requiring the approval by Successor
Agencies the PSC Include;
1) fixing of rates;
2)establishment, maintenance and
operation of new units and extension of
facilities or service;
3) abandonment of station;
4) issuance of stocks without par value;
5) sale, alienation and mortgage,
encumbrance, lease, by public service of its
properties, franchises, certificates,
privileges or rights or any part thereof –
the need for approval will only be required
for properties of public service that are
used and useful in the delivery of the
required public service;
6) Merger or consolidation by the public
service of its properties, franchises,
certificates, privileges, or rights with those
of any other public service;
7) Sale, alienation or transfer of the capital
stock of the public service that will make
the transferee the owner of 40% of the
subscribed capital; and
8) Sale, alienation or transfer of the capital
stock of the public service to any alien if
the result of that sale in itself or with
connection with another previous sale shall
be the reduction to less than 60% of the
capital belonging to PH Nationals on the
operation of a public utility as require by
the Constitution. Such sale, alienation or
transfer shall be void and of no effect and
shall be sufficient cause for ordering the
cancellation of the certificate.
2. Foreign Equity Public Utilities
- Section 11 of Art. XII of the Constitution
provides that, “No franchise, certificate or
any other form of authorization for the
operation of a public utility shall be
granted except to citizens of the PH or to
corporations or associations organized
under the laws of the PH at least 60% of
whose capital is owned by such citizens,
 nor shall such franchise, certificate or
authorization be exclusive in character for
a longer period than 50 years.”
- It likewise provides that “participation of
foreign investors in the governing body of
any public utility enterprise shall be limited
to their proportionate share in its capital,
and all the executive and managing officers
of such corporation or association must be
citizens of the Philippines.”
- The SC clarified that the limit imposed by
the Constitution on foreign equity applies
only to the operation of a public utility and
not to ownership of the facilities. For
example, a corporation may own rail racks,
rolling stocks like coaches, rail station
terminals and power plant without being a
public utility.
- A common carrier may lease its vehicle like
an airplane from another corporation which
does not have a franchise. Ownership of the
assets only does not require 60% Filipino
equity.
3. Non-Exclusivity and Period
- The franchise shall not be longer for a
period of more than 50 years. However, the
franchise can be renewed.
4. Constitutional Limitations the limitations
imposed on public utilities under Art. XII of the
Constitution are as follows: (Secs. 1, 6, 11, 17,
18, 19 and 22)
1. No franchise certificate, or any other form
of authorization for the operation of a
public utility shall be granted except to the
citizens of the PH or to corporations or
associations organized under the laws of
the PH at least 60% of whose capital is
owned by such citizens;
2. No franchise, certificate, or authorization
shall be exclusive in character;
3. No franchise, certificate or authorization
shall be for a longer period than 50 years;
4. A franchise or right shall be granted only
under the condition that it shall be subject
to amendment, alteration, or repeal by the
Congress when the common good
requires;
5. The State shall encourage equity
participation in public utilities by the
general public;
6. The participation of foreign investors in
the governing body if any public utility
enterprise shall be limited to their
proportionate share in its capital;
7. All the executive and managing officers of
the public utility that is a corporation or
association must be citizens of the PH;
8. In times of national emergency, when the
public interest so requires, the State may,
during the emergency and under
reasonable terms prescribed by it,
temporarily take over or direct the
operation of any privately-owned public
utility or business affected with public
interest;
9. The State may, in the interest of national
welfare and defense, upon payment of just
compensation, transfer to public
ownership utilities and other private
enterprises to be operated by the
Government;
10. The State shall regulate or prohibit
monopolies when the public interest so
requires; and
11. Combinations in restraint of trade or unfair
competition are not allowed.