Descampado. Exterior Día

1. Definition (§123)

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.

2. “Doing business” (Sec. 3(d) RA 7042, Foreign Investments Act of 1991)

 Soliciting orders

 Service contracts

 Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling 180 days or more

 Opening offices, whether called liason offices or branches

 Establishing a factory, workshop or processing plant

 Undertaking building construction or erection projects

 Opening a store, whether wholesale or retail without prejudice to the provisions of the Retail Trade Act

 Maintaining or operating a warehouse for business purposes including the storage, display or delivery of its own products

 Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines

 Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent, performance normally incident to , and in progressive prosecution of, commercial gain or of the purpose and object of the business organization

 It shall not include:

 Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business and/or the exercise of such rights as such investor

 Having a nominee director or officer to represent its interests in such corporations

 Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account

 The following acts by themselves shall not be deemed doing business in the Phil:

 The publication of a general advertisement through newspapers, brochures or other publication media or through radio or television

 Maintaining the stock of goods in the Phil solely for the purpose of having the same processed by another entity in the Phil.

 Collecting information in the Phil.

 Performing services auxiliary to an existing contract or sale, which are not on a continuing basis

Mentholatum Co., Inc., v. Mangaliman (1941)

No general rule or governing principle can be laid down as to what constitutes “doing” or

“engaging” in or ‘transacting” business.

Indeed, each case must be judged in the light of its peculiar environmental circumstances.

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. 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 the functions normally incident to and in the progressive prosecution of the purpose and object of its organization.

Necessity of obtaining a license to do business:

The reason for the license is to subject the foreign corporation doing business in the Philippines to the jurisdiction of the courts, otherwise a foreign corporation illegally doing business here 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 Van Zuiden Bros. Ltd. V. GTVL Manufacturing GR No. 147905 May 28, 2007

Zuiden, a foreign corporation not licensed to do business in the Philippines, filed a complaint for sum of money with the RTC of Paranaque against GTVL. The latter filed a motion to dismiss on the ground that petitioner has no legal capacity to sue and this was granted. The CA sustained the RTC ruling that the transactions were not isolated hence not falling within the exception. It relied on Eriks Pte. Ltd. V. CA where it held that what is material are the proponents to the transaction, as well as the parties to be benefited and obligated by the transaction.

HELD: To be doing or “transacting business in the Philippines” for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. An essential condition to be considered as “doing business” in the Philippines 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. Here, there is no showing that petitioner performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and

respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation of these transactions were done outside the Philippines. The series of transactions between petitioner and respondent transpired and were consummated in Hong Kong.

The SC found no single activity which petitioner performed here in the Philippines pursuant to its purpose and object as a business organization.

Moreover, petitioner’s desire to do business within the Philippines is not discernible from the

allegations of the complaint or from its attachments.

Therefore, there is no basis for ruling that petitioner is doing business in the Philippines. The SC

categorically stated its disagreement with the Court of Appeals’ ruling that the proponents to the transaction determine whether a foreign corporation is doing business in the Philippines, regardless of the place of delivery or place where the transaction took place. To accede to such theory makes it possible to classify, for instance, a series of transactions between a Filipino in the United States and an American company based in the United States as “doing business in the Philippines,” even when these transactions are negotiated and consummated only within the United States

3. Requirements for the issuance of a license

3.1. Documentary requirements (§125)

 A foreign corporation applying for a license to transact business in the Philippines shall submit to the SEC:

o Copy of its articles of incorporation and by-laws, certified in accordance with law

o 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:

o The date and term of incorporation;

o The address, including the street number, of the principal office of the corporation in the country or state of incorporation;

o 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;

o The place in the Philippines where the corporation intends to operate;

o 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;

o The names and addresses of the present directors and officers of the corporation;

o 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;

o 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;

o A statement of the amount actually paid in; and

o 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:

o The laws of the country or state of the applicant allow Filipino citizens and corporations to do business therein

o 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 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 SEC and other governmental agency in the proper cases that the:

o Applicant is solvent and in sound financial condition, and

o 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.

 Foreign banking, financial and insurance corporations shall, in addition to the above requirements, comply with the provisions of existing laws applicable to them.

 In the case of all other foreign corporations, no application for license to transact business in the Philippines shall be accepted by the SEC without previous authority from the appropriate government agency, whenever required by law.

3.2 Deposit requirements (§126)

 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 SEC for the benefit of present and future creditors of the licensee in the Philippines, securities satisfactory to the SEC, consisting of :

o 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, o Shares of stock in "registered enterprises" as this term is defined in Republic Act No. 5186,

o Shares of stock in domestic corporations registered in the stock exchange, or

o Shares of stock in domestic insurance companies and banks, or o 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC that the licensee has no liability to Philippine

residents, including the Government of the Republic of the Philippines.

3.3 Appointment of resident agent (§128)

 A resident agent may be either an (§

127):

o Individual residing in the Philippines of good moral character and of sound financial standing

o Domestic corporation lawfully transacting business in the Philippines:

 The SEC shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the SEC a written power of attorney:

o Designating some person who must be a resident of the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation, and

o Consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office.

 Any such foreign corporation shall likewise execute and file with the SEC an agreement or stipulation, executed by the proper authorities of said corporation, in form and substance as follows:

o "The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by the Securities and Exchange Commission a license to transact business in the Philippines, that if at any time said corporation shall cease to transact business in the Philippines, or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any summons or other legal process may be made upon the SEC and that such service shall have the same force and effect as if made upon the duly-authorized officers of the corporation at its home office."

 Whenever such service of summons or other process shall be made upon the SEC, the Commission shall, within ten (10) days thereafter, 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 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.

 In case of a change of address of the resident agent, it shall be his or its duty to immediately notify in writing the SEC of the new address.

3.4 Summary: Requisites for the Issuance of License

 The SEC will issue a license to the foreign corporation to do business in the Philippines, provided the following conditions are met:

o Appointment of a Resident Agent:

 Either a Filipino or domestic corporation; and

 Power of Attorney to SEC to receive process

o Must prove that the foreign corporation's country grants reciprocal rights to Filipinos and Philippine corporation.

o Establish an office in the Philippines o Bring in its assets

o Undertaking that Filipino creditors will be preferred in the event of insolvency

o Notice of six (6) months should there be desire to terminate operations

o Franchise and patents must remain in the Philippine, if this is possible o Must file a bond of P100,000 which

may be in the following form:

 surety bond

 government securities

 securities of political subdivisions

 shares of stock of registered enterprises with the SEC

 shares of stock of any corporation being sold at the stock exchange

o Provided, that within six (6) months after each fiscal year, the SEC shall require the deposit of additional securities equivalent to 2% of the amount in excess of P500,000 of the gross income.

[Sec. 125, 126, Corporation Code]

4. What laws are applicable to foreign corporations licensed to transact business in the Philippines?

(§129)

 Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class,

EXCEPTsuch only as provide for the:

o Creation, formation, organization or dissolution of corporations or

o Those which fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation.

5. What are the consequence of doing business in the Philippines without a license? (§133)

 No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines;

 Such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

 In addition, Sec. 134 makes it a ground for revocation of license when a foreign corporation transacts 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.

 Status of Contracts entered into without the requisite license

o The failure to obtain a license by a foreign corporation doing business in the Philippines does not affect the validity of contracts entered into by such foreign corporation, but merely removes its legal standing to sue in local tribunals. However, the defect may be cured by subsequent registration by the foreign corporation to obtain the necessary license to do business in the Philippines. [Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 (1983)]

o Although the law does not declare as void or invalid the contracts entered into by a foreign corporation with a local corporation without the former first securing a license or certificate to do business in the Philippines, the parties in this case cannot obtain relief on the contracts entered into because they are charged with the knowledge of the existing law at the time they entered into such contract and at the time it is to be operative. [Top-Weld Mfg. v. ECED, S.A., 138 SCRA 118 (1985)]

o However, in the case of Merrill Lynch Futures, Inc. v. CA, 211 SCRA 824 (1992), the SC held that although the foreign corporation has engaged in business in the Philippines without a license, the dismissal of the suit would not be proper on the ground that if the local investors knew that the foreign corporation had no license to do business, then they are estopped from using the lack of license to avoid their obligations.

 Legal standing of foreign corporations to sue on their corporate names, trade names, and trademarks

o A foreign corporation although not doing business in the Philippines has a personality to sue to oppose the registration of a trademark when it is shown that its products using such trademark are being imported and sold in the Philippines, pursuant to the terms of RA 166. [General Garments v.

Director of Patents, 41 SCRA 50 (1971)]

o A foreign corporation has a right to maintain an action in Philippine courts

even if it is not licensed to do business and is not actually doing business on its own therein to protect its corporate and trade names, since it is a property right in rem, which it may assert to protect against all the world, in any of the courts of the world--even in jurisdiction where it does not transact business--just the same as it may protect its

even if it is not licensed to do business and is not actually doing business on its own therein to protect its corporate and trade names, since it is a property right in rem, which it may assert to protect against all the world, in any of the courts of the world--even in jurisdiction where it does not transact business--just the same as it may protect its