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BUSINESS AND COMMERCIAL LAW AND CORPORATE

REHABILITATION

Incorporators of a Corporation

There should be at least five (5) natural individuals, a majority of


whom should be residents of the Philippines, to act as
incorporators of a Philippine corporation. However, a
corporation may subscribe to the authorized capital stock of a
corporation in the pre-incorporation stage. The incorporators are
required to disclose their full names, residential address,
citizenship, birth date, Tax Identification Number and
Community Tax Certificate details.

Foreign Nationals or Foreign Corporations as Stockholders

A foreign national or foreign corporation can subscribe to and


own shares of stock of a domestic corporation. In certain
instances and subject to certain requirements, foreign nationals
and/or foreign corporations are allowed to be the controlling
stockholder/s or can own up to 100% of the issued capital stock
of a domestic corporation.

Juridical Personality

Under Philippine laws, a corporation has a separate and distinct


juridical personality from its stockholders and/or officers.
However, in instances where the corporate vehicle was utilized
for fraudulent purposes, the law also allows the corporate
identity to be pierced or lifted, in which case, responsibility or
liability may be imposed upon the individuals forming or having
control of the corporation.

Issuance of Shares

The issuance of shares of stock from the unissued authorized


capital stock of a corporation is governed by the Securities
Regulation Code of the Philippines, and the transaction may be
classified as an exempt transaction or the shares of stock
classified as exempt shares. Said issuance is subject to the
approval or confirmation by the Securities and Exchange
Commission.

The issuance of shares of stock or the subsequent transfer


thereof is subject to the payment of a Documentary Stamp Tax
in addition to the Capital Gains Tax, if any, in the latter event.

Issuance of Stock Certificates

A stockholder is entitled to the issuance of a Stock Certificate


only upon payment of the full amount of his subscription,
together with interest and expenses (in case of delinquent
shares), if any is due. Partial payments on one subscription shall
be deemed applied proportionately among the number of
shares, in which case, no stock certificate can as yet be issued
before its full payment. [SEC Opinion No. 06-113]

Corporate Reportorial Requirements

Philippine law generally requires the submission of the following


reports:

a. General Information Sheet (GIS) within 30 days from


the actual date of the Annual Stockholders or Members
Meeting and/or any change in the composition of the Board
of Directors or Trustees of a corporation or any other
information in the GIS. If the corporation is unable to hold
stockholders or members meeting for the calendar year,
then the GIS must be filed not later than January 30 of the
next calendar year. For domestic corporations (except banks
and insurance companies) with annual gross sales or gross
revenues of at least Php5,000,000.00, copies in electronic
format (i.e. on disc drives or compact discs) must also be
submitted.

b. Audited Financial Statements duly stamped received by


the Bureau of Internal Revenue and within 120 days after the
end of the corporation's fiscal year as specified in the
corporate By-Laws. For stock corporations with paid-up
capital of less than Php50,000.00, or non-stock corporations
with gross annual receipts of less than Php100,000.00 or
total assets of less than Php500,000.00, the Financial
Statements shall, at the minimum, be certified under oath by
the treasurer of the corporation. For domestic corporations
(except banks and insurance companies) with annual gross
sales or gross revenues of at least Php5,000,000.00, copies
in electronic format (i.e. on disc drives or compact discs)
must also be submitted.

c. Affidavit of Non-Operation (in addition to the GIS and the


Financial Statements) within 120 days after the end of the
fiscal year as specified in the corporate By-Laws.

d. Stock and Transfer Book (for stock corporations) or


Membership Book (for non-stock corporations) within 30
days from the date of issuance of the certificate of
incorporation.

e. Affidavit of Non-Operation with Balance Sheet within the


period prescribed for filing the General Information Sheet or
the Financial Statements, whichever comes first.
These reports, in five (5) copies, are to be submitted to the
Securities and Exchange Commission.

Foreign Corporations

A foreign corporation is defined as 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 the Philippines. [Sec. 123,
Corporation Code of the Philippines] The application for such a
license shall include specifically required data, including the
designation of a resident agent, who shall be authorized to
accept summons and processes in all legal proceedings
affecting the corporation, which is meant to ensure that proper
jurisdiction will be obtained over the foreign corporation in the
event of suits and similar proceedings. [Sec. 126-128, Ibid.]

Subject to the approval by the Securities and Exchange


Commission and/or the Board of Investments upon submission
of certain documentary requirements, a foreign corporation may
establish any of the following in the Philippines:

a. a Representative Office, for liaison and research work,


quality control, and/or solicitation of clients, but which will not
earn any income in the Philippines, with proof of inward
remittance of at least US$30,000.00;

b. a Branch Office, which is allowed to do business and earn


income in the Philippines. Generally, a branch office of a
foreign corporation that qualifies as a domestic market
enterprise must have a paid-up capital of at least
US$200,000.00. However, where the activities of the
domestic market enterprise involve advanced technology or
where at least 50 direct employees are employed, the paid-
up capital requirement is reduced to US100,000.00. A
branch office that qualifies as an export enterprise (exporting
60% or more of its output) is not subject to any minimum
capitalization requirement;

c. a Regional or Area Headquarter, to act as supervisory,


communications and coordinating center for affiliates,
subsidiaries, or branches in the Asia Pacific Region, but
without any authority to do business or to earn income in the
Philippines, which requires, among other things, proof of
inward remittance of at least US$50,000.00 initially and,
thereafter, US$50,000.00 annually;
d. a Regional Operating Headquarter, which is allowed to
derive income in the Philippines by performing qualifying
services to its affiliates, subsidiaries or branches in the Asia
Pacific Region and in other foreign markets, which requires,
among other things, proof of inward remittance of at least
US$200,000.00; and

e. a Regional Warehouse, to (i) serve as a supply depot for the


storage, deposit, and safekeeping of its spare parts, semi-
finished products, and raw materials, (ii) fill up transactions
and sales made by its head office or parent company, and
(iii) serve as storage or warehouse of goods purchased
locally for export abroad. A Regional Warehouse, which
cannot do business or to earn income in the Philippines, may
be set up by a foreign company which has established or will
simultaneously establish a Regional or Area Headquarter or
a Regional Operating Headquarter.

Corporate Rehabilitation

A corporation, partnership, or association which possesses


sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due
may file with the proper court a petition for suspension of
payments and for rehabilitation. Subject to compliance with
certain requirements, including the submission of the
rehabilitation plan, the court may issue an order to temporarily
stop enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise,
against the debtor. Thereafter, upon proof of viability of the
rehabilitation plan, the court may grant the petition, which shall
have, among others, the following effects:

a. The plan and its provisions shall be binding upon the debtor-
corporation and all persons who may be affected by it,
including the creditors, whether or not such persons have
participated in the proceedings or opposed the plan or
whether or not their claims have been scheduled;

b. The debtor-corporation shall comply with the provisions of


the plan and shall take all actions necessary to carry out the
plan; and

c. Payments shall be made to the creditors in accordance with


the provisions of the plan.