PHILIPPINE LEGAL RESOURCES ON CORPORATION, PARTNERSHIP, JOINT

VENTURE & SINGLE PROPRIETORSHIP - AT A GLANCE

BUSINESS ORGANIZATION
At a Glance
CORPORATION
Corporation, definition:
Within the context of Philippine law, a "corporation" is treated as an artificial
being created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to
its existence [Sec. 2, Corporation Code].cralaw
Corporation, classes:
Corporations may be classified as follows:
[a] Stock corporations - [1] capital stock divided into shares; and [2]
authorized to distribute profits
[b] Non-stock corporations - organized not for profit
Corporation, kinds by method of creation:
[a] by special law or charter
[b] by being organized under the corporation code
Corporation, how organized:
Philippine corporate entities are organized as follows:
[a]Number of incorporators:
Incorporators are required to be not less than five [5] but not more than
fifteen [15].cralaw
[b] Residency requirement:
Majority of the incorporators are required to be residents of the
Philippines.cralaw
[c] Qualifications:
All incorporators:

[1] must be natural persons

[2] must be of legal age
A corporation or a partnership cannot be incorporators of a Philippine
corporate entity. The only way a corporation or a partnership may become
stockholder of a Philippine corporation is by acquiring a stock thereof but only
after it shall have been duly incorporated.cralaw
[d] Subscription requirement:
All incorporators must subscribe to at least one (1) share of stock of the
corporation being organized.cralaw
Corporation, minimum subscription:
The law requires that the total capital stock to be subscribed at the time of
incorporation should at least be twenty five percent [25%] of the authorized
capital stock of the corporation being organized.cralaw
Corporation, minimum paid-up capital:
The paid-up capital of a Philippine corporation must not be less than
PhP5,000.00. Thus, it is required that at least twenty five percent [25%] of
the subscribed capital stock should be fully paid up but the amount of which
should not be less than said PhP5,000.00.cralaw
Corporation, incorporation documents:
The following incorporation documents are required:
[a] Articles of Incorporation;
[b] By-laws;
[c] Treasurer's Affidavit which should state compliance with the authorized
subscribed and paid-up capital stock requirements.cralaw
[d] Bank Certificate that the paid-up capital portion of the authorized capital
stock has been deposited with the issuing bank.cralaw
There are "express lane" forms available at the Securities and Exchange
Commission [SEC] for certain specified corporate business
organizations.cralaw
Corporation, where filed:
The incorporation documents should be filed with the Securities and
Exchange Commission [SEC] of the Philippines.cralaw

Corporation, what should be stated:

[a] the name of the corporation which must not be identical or deceptively or
confusingly similar to any existing corporation;
[b] the purpose of the corporation;
[c] principal office of the corporation;
[d] the term or life of the corporation which should not exceed fifty [50]
years. This corporate lifetime may, however, be extended for another fifty
[50] years but the extension must not be effected earlier than five [5] years
before the expiration of its term.cralaw
Corporation, limitation on foreign equity holdings:
The equity requirements should be strictly observed and followed in certain
areas of business where the constitution and the laws of the Philippines
impose limitation on foreign holdings.cralaw
Generally, however, foreigners may invest as much as one hundred percent
[100%] equity in areas not covered by the Negative List under the Foreign
Investments Act.cralaw
The following provisions thereof may serve as guide:
List A : Includes those reserved to Philippine nationals by the Constitution of
the Philippines.chanrobles virtual law library
[a] exploitation of natural resources [100% domestic equity]
[b] operation of public utilities [60% domestic equity]
[c] mass media [100% domestic equity]
[d] educational institution [70% domestic equity]
[e] labor recruitment [65% dom. equity]
[f] retail trade [100% dom. equity]
[g] rural banking [100% dom. equity]
List B : Includes those regulated by law.chanrobles virtual law library
[a] defense-related activities
[b] manufacture and distribution of dangerous drugs
[c] nightclubs, bathhouse and similar activities

[d] small and medium-sized domestic market enterprises with paid-in equity
capital of less than US$500,000.00
[e] export enterprises utilizing new materials from depleting natural
resources with paid-in equity of less than US$500,000.00
Corporation, when corporate existence commences:
The corporate life or existence of a Philippine corporation commences from
the time a Certificate of Incorporation is issued in its favor by the Securities
and Exchange Commission [SEC].cralaw
Corporation, effect of non-use:
[a] A corporation is deemed dissolved if the corporate charter granted in its
favor expires by non-use for a period of at least two [2] years from issuance
thereof.cralaw
[b] A corporation is deemed suspended or its franchise revoked if it has been
duly organized but it failed to operate for a period of five [5] years.cralaw
Corporation, its organization:
A Philippine corporation is organized by electing members to its Board of
Directors, by electing the corporate officers thereof and/or by setting up an
Executive Committee.cralaw
Board of Directors, qualifications:
The members of the Board of a Philippine corporation must possess the
following qualifications:
[1] owner or holder of at least one [1] share of capital stock;
[2] majority of the members must be residents of the Philippines;
[3] they must be elected by the owners/holders of at least the majority of the
outstanding capital stock.cralaw
Board of Directors, corporate acts:
For validity and legality of the corporate acts of the Board of Directors, a
meeting should be fully convened and the same must be attended by at least
a majority of its members. Any and all corporate acts must be duly approved
by a majority of the members of the Board except when otherwise provided
by Philippine laws or by the By-laws of the corporation.cralaw
Board of Directors, self-dealing rule:

A self-dealing transaction of a member of the Board of Directors becomes

voidable except under the following circumstances:
[1] When the presence of such director in the Board meeting is not
necessary to constitute a quorum;
[2] When his vote is not necessary for the approval of the contract or
transaction
[3] When the terms of the contract are fair and reasonable and had been
previously approved by the Board of Directors.cralaw
Corporate Officers, general rule:
As a general rule, the corporate officers of a Philippine corporation consist of
the President who is required to be a member of the Board of Directors; the
Corporate Treasurer; and the Corporate Secretary who is required to be both
a resident and a citizen of the Philippines.cralaw
Other corporate officers may be designated under the By-laws of the
corporation without getting afoul with the law.cralaw
The only limitation imposed by law on corporate officers is that no person can
be the President and the Corporate Secretary at the same time or the
President and Corporate Treasurer at the same time.cralaw
Corporate Officers, personal liability for damages:
A corporate officer of a Philippine corporation becomes personally liable for
certain corporate acts under the following circumstances:
[1] When he willfully and knowingly votes or assents to patently unlawful
acts;
[2] When he is guilty of gross negligence or bad faith in the conduct of the
corporate affairs; or
[3] When he acquires personal or pecuniary interest which is in conflict with
his duty as such officer.cralaw
Stockholders, limited liability:
The liability of stockholders in Philippine corporations is limited only to the
extent of their capital contribution thereto. Other properties, holdings or
assets of stockholders are not within the reach of corporate creditors. To
discourage abuse of this privilege, the Securities and Exchange Commission
[SEC] imposes certain reportorial requirements which should be complied
with on a regular basis.

Stockholders, kinds of meetings:

The kinds of meetings involving the stockholders of a Philippine corporation
are as follows:
[1] Regular meeting which is the equivalent of the annual stockholders'
meeting required to be duly provided under the By-laws;
[2] Special meeting which may be called anytime as may be necessary
Stockholders' meeting, requisites for validity:
In order to be valid, the stockholders' meeting should comply with the
following requisites:
[1] A notice of such meeting must be served to the stockholders
[2] A quorum, [i.e., majority of the outstanding capital stock of the
corporation] must be fully established.cralaw
[3] Any and all acts of the stockholders in a meeting duly called and
constituted, are deemed valid if approved by a majority of the outstanding
capital stock or at least two-thirds [2/3] vote in certain cases specified under
the law.

Corporation, dissolution:
As a general rule, the corporate existence of a Philippine corporation may last
up to fifty [50] years, renewable for another fifty [50] years. However, such
lifetime may be shortened by a vote of 2/3 of the outstanding capital stock
thereof through the process called dissolution.

BUSINESS ORGANIZATION
At a Glance
FOREIGN CORPORATION

Foreign investments, how made:

Foreign investments in the Philippines may be made under any of the
following modes:

[1] By establishing a domestic branch office or operation;

[2] By establishing a Philippine representative office;
[3] By operating through a business association in the Philippines;
[4] By operating through a local subsidiary which may be owned entirely or
partially by the foreign business entity;
[5] By establishing joint venture arrangement with a local corporation or
business organization;
[6] By establishing an affiliate in the Philippines.cralaw
Among the types of business organizations allowed under Philippine law, a
corporation is the most feasible mode of establishing business in the
Philippines. The choice of a particular mode of establishing corporate
presence in the Philippines will depend to a great extent on the kind of
business in which a foreign investor wants to engage. Unless falling within
the restricted list where foreign ownership is limited to a certain percentage
of equity, a foreign investor may establish corporate presence in the
Philippines directly, i.e., by establishing a branch office or by creating a
wholly-owned subsidiary.
Foreign corporation, governing law:
As far as domestic corporations are concerned, the governing law over their
creation, formation, management, dissolution and liquidation is the
Corporation Code of the Philippines. This same law also governs the
corporate relationships between the corporation and its shareholders, the
public, and the government.
As far as foreign corporations, however, are concerned, the law governing
their creation, formation, dissolution and liquidation is the law of the country
where such foreign corporations were organized or established. This is a
principle of international law which is fully recognized in Philippine
jurisdiction. Further, Philippine corporation laws were basically patterned after
American corporation and enterprise laws. Consequently, it is no wonder that
when unique situations confront Philippine courts, resort to American laws
and jurisprudence is made to resolve them.
Foreign corporation, right to sue:
Whether a foreign corporation is possessed of the right to sue in the
Philippines is determined as follows:
[1] If the foreign corporation is transacting or doing business in the
Philippines with a license, it has the right to sue within the jurisdiction of the

Philippines;
[2] If it is transacting or doing business without a license, it cannot sue;
[3] If it is not transacting or doing business in the Philippines, it can sue
even if it is not possessed of any license.
Foreign corporation, right to be sued:
A foreign corporation may be sued in the Philippines:
[1] If it is transacting or doing business in the Philippines with a license;
[2] If it is transacting or doing business in the Philippines without a license;
However, if it is not transacting or doing business in the Philippines and does
not have any license to so transact or do business in the Philippines, it cannot
be sued in the Philippines for lack of jurisdiction.
Foreign corporation, registration requirement; procedure; documentation:
Foreign corporations intending to operate in the Philippines through the
modes allowed by law, should register with the Philippine Securities and
Exchange Commission [SEC]. Such registration is necessary to give legal
personality thereto. Consequently, duly-registered foreign corporations are
treated as artificial beings possessed of all rights, benefits and privileges
appurtenant to being a corporate citizen, such as the capacity to sue and be
sued, and/or invoke the protection of Philippine laws in all their business and
commercial dealings.
Procedure:
The procedure for the registration of a domestic or foreign corporation may
be summed up as follows:
First step. Determination of whether the corporation is going to engage or do
business in an industry where the Philippine constitution and laws impose
restrictions as to foreign equity ownership. If the restriction or prohibition is
absolute in nature, the foreign corporation will not be permitted to be set up
in the Philippines. If the restriction or prohibition is not absolute, a foreign
corporation may be allowed to be set up in the Philippines but just the same,
it must comply with the strict foreign equity ownership limitation. In case
there is no such limitation or prohibition, absolute or otherwise, the foreign
corporation may directly engage in business in the Philippines under any of
the permissible modes described above.
Second step. Confer with the proper government agency regulating or
supervising the particular industry where the foreign corporation desires to

engage in. A certification from said appropriate government agency that it is

not so prohibited from engaging in a business falling within that industry
must be secured. Certain industries require this certification such as the
banking industry, insurance, etc.
Third step. Proceed with the filing of the application with the Securities and
Exchange Commission [SEC] which application must be accompanied by the
said certification. The SEC will then examine the documents submitted and
consequently release the registration papers in due time.
Documentation:
[A] In the case of existing foreign corporations intending to set up a branch
or representative office in the Philippines, the following documentation
process shall be undertaken::
[1] Verification of the name of the corporation with the SEC [a name
verification slip is issued by the SEC for this purpose] to determine whether
there is similarity in the corporate name with any existing corporations
registered with the SEC;
[2] A copy of the Board Resolution of the corporation duly certified by the
Corporate Secretary and/or members of the board, that the corporation is
authorized to establish an office in the Philippines and naming or designating
therein its authorized agent in the Philippines;
[3] Duly audited financial statements covering the year immediately
preceding the filing of the application;
[4] Certified copies of the original Articles of Incorporation duly filed in the
country of origin [or so-called home country] and translated in English;
[5] Verified proof of inward remittance such as bank certificate or credit
advice.
[B] In the case of domestic corporations, the following documentation
requirements should be complied with:
[1] Copy of the proposed Articles of Incorporation;
[2] Name Verification Slip [issued by the SEC];
[3] Certificate of Deposit issued by a bank to show proof that the paid-up
capital portion of the authorized capital stock is duly deposited in said bank;
[4] Copy of the Alien Certificate of Registration, Special Investor's Resident
Visa or other types of visa;

[5] Proof of inward remittance which is required for non-resident aliens.

Foreign corporation, merger or consolidation with domestic corporation:

Philippine law allows one or more foreign corporations to merge or

consolidate with one or more domestic corporations in the Philippines. In the
event, however, that the absorbed corporation is the foreign corporation, the
latter should file a petition for withdrawal of its license with the Securities and
Exchange Commission [SEC].

At a Glance
PARTNERSHIP
Partnership, nature:
Within the context of Philippine law, a "partnership" is treated as an artificial
being created by operation of law with a legal personality separate and
distinct from the partners thereof. It proceeds from the concept that persons
may be allowed to pool their resources and funds to engage in the pursuit of
a common business objective without necessarily organizing themselves into
a corporation, upon which the law imposes a much higher form of regulation,
limitation and standards. Philippine partnerships operate under the concept
of unlimited liability and unless otherwise agreed upon by the partners, each
one of them acts as manager and agent of the partnership and consequently,
their acts bind the partnership.cralaw
Partnership, governing law:
Unlike corporations whose governing law is a special law - the Corporation
Code of the Philippines, partnerships in the Philippines are governed by and
covered under Articles 1767 to 1867 of the Civil Code of the Philippines [circa
1950]. These are the provisions of law which govern all aspects of
partnerships - from their creation, formation, existence, operation and
management to their dissolution and liquidation, including the obligations of
the partners to one another, to the public or third persons and to the
government.
Partnership, how formed; registration requirement:
Partnerships are required to be registered with the Securities and Exchange
Commission [SEC]. Registration is done by filing the Articles of Partnership

with the SEC. The Articles of Partnership set forth all the terms and
conditions mutually agreed by the partners thereto.
More specifically, the documents required are as follows:
[1] Proposed Articles of Partnership;
[2] Name Verification Slip;
[3] Bank Certificate of Deposit;
[4] Alien Certificate of Registration, Special Investors Resident Visa or proof
of other types of visa [in case of foreigner];
[5] Proof of Inward Remittance [in case of non-resident aliens].
It bears noting that corporations are not allowed by law to become partners
in a partnership.
Partners, liability:
As a general rule, the liability of partners in a partnership organization is
unlimited in the sense that the partnership creditors may run after them for
any and all of their assets and property in payment of the partnership debts.
Should one of the partners defray all liabilities of the partnership, he is
entitled to be reimbursed by the other partners for their respective shares
therein.
In the case, however, of limited partnerships, the law allows the limitation of
the liability of certain partners to the extent of the amount contributed to the
partnership.
Partnership, dissolution:
Philippine law allows the dissolution of partnership for any reason, provided
such dissolution does not amount to a breach of contract or is prejudicial to
third parties. The death of a partner or the unauthorized transfer of
ownership of his share in the partnership [in case there is a limitation to this
effect] results in the dissolution thereof. In other words, any change in the
composition of the partnership, unless so allowed, will result in the dissolution
thereof. Consequently, the remaining partners may form a new partnership
with less or more partners.
JOINT VENTURE
Joint venture, concept:
Joint venture, within the concept of Philippine law, is organized or established
only for some transient or temporary business objective. It is often

characterized as being similar to a partnership in the sense that there exists

among the joint venturers, commonality of interest and mutual right of
control, not to mention the mode by which profits or losses are shared. Joint
ventures are usually resorted to by corporations - domestic or foreign-based which are not allowed to form partnerships or become partners in a
partnership. Only individual, natural persons are permitted to form
partnerships.
SINGLE PROPRIETORSHIP
Proprietorship, concept:
The establishment, management and operations of this form of business
organization is not governed by a special law, unlike in the case of
corporations.
However, resort to general laws governing civil obligations and contracts or
business and commercial transactions may be made.
As a general rule, foreigners may put up single proprietorship business in the
Philippines in industries where the constitution and the laws do not impose
any restriction or limitation on ownership equity.
In the event that non-Philippine nationals are not allowed to form single
proprietorship business in a particular industry, he may still proceed with his
business venture through other forms of business organizations such as
corporation, partnership or joint venture.
Single proprietorship, how formed; registration requirement:
A single proprietorship is the simplest form of business organization in the
Philippines. It is not encumbered by the strict regulatory laws and rules
imposed upon corporations and partnerships.
Government registration of a single proprietorship business is simple. It is
made through the Bureau of Trade Regulation and Consumer Protection of the
Department of Trade and Industry [DTI].
Single proprietorship, liability of proprietor:
The single proprietor has unlimited liability in the sense that creditors of his
business may proceed not only against the assets and property of his
business but after his own personal assets and property. Creditors with whom
he had incurred personal debts may also run after the assets and property of
his single proprietorship business. Simply put, the law does not make any
distinction between his personal affairs and his business transactions. Before
the eyes of the law, they are one and the same, his business being a mere

extension of his person.