TYPES OF CORPORATE VEHICLES
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DOMESTIC CORPORATION
An investor may establish a domestic corporation, which is a corporation that is incorporated under Philippine laws.
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Assuming that the proposed activity is not subject to any foreign equity limitation, a foreign investor wholly-own the domestic corporation.
If the proposed activity is subject to foreign equity restrictions, the domestic corporation must comply with the required Filipino ownership in such corporation.
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FOREIGN CORPORATION
A foreign investor may also engage in business in the Philippines, which is not subject to foreign equity restrictions, by registering different types of vehicles in the Philippines.
Branch Office
A foreign investor may register a branch office to engage in activities that are not subject to foreign equity restrictions. A branch office is not considered as a separate entity from the foreign corporation that registered the same, but merely an extension of the legal personality of such foreign corporation. The scope of activities of the branch office in the Philippines must be covered by the scope of authorized activities of the foreign corporation that registered the branch office.
Representative Office
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A representative office may be established to deal directly with the clients of its head office who are in the Philippines, and to undertake information dissemination and promotion of the company’s products as well as quality control only. A representative office may not derive income in the Philippines and is fully subsidized by its head office.
A representative office must have an initial inward remittance of USD30,000 to fund its operations.
Regional or Area Headquarters (RHQ)
A multinational company engaged in international trade may establish a RHQ in the Philippines to act as an administrative branch of the multinational company and to serve principally as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia Pacific Region and other foreign markets.
The RHQ may not earn or derive income in the Philippines. It may not participate, in any manner, in managing any subsidiary or branch office it may have in the Philippines; neither may it solicit or market goods or services, whether on behalf of its parent company or its branches, affiliates, subsidiaries or any other company.
Its expenses must be financed by the head office or parent company from external sources in an acceptable foreign currency. To fund its operations in the Philippines, its head office or parent company must initially remit into the Philippines at least USD50,000 and thereafter, USD50,000 annually.
Regional Operating Headquarters (ROHQ)
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A multinational company may establish an ROHQ in the Philippines to service its own affiliates, subsidiaries or branches in the Philippines or in the Asia Pacific Region and other foreign markets.
An ROHQ is allowed to derive income in the Philippines by performing any of the following qualifying services:
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General administration and planning
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Business planning and coordination
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Sourcing/procurement of raw materials and components
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Corporate finance advisory services
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Marketing control and sales promotion
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Training and personnel management
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Logistics services
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Research and development services and product development
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Technical support and maintenance
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Data processing and communication
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Business development
An ROHQ is prohibited from offering qualifying services to entities other than its affiliates, branches, or subsidiaries, as declared in its registration with the SEC, nor shall it be allowed to solicit or market goods and services directly and indirectly, whether on behalf of its mother company, branches, affiliates, subsidiaries or any other company.
An ROHQ must initially remit into the Philippines at least USD200,000.
Regional Warehouses
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A multinational company organized and existing under any laws other than those of the Philippines, which is engaged in international trade and supplies spare parts, components, semi-finished products and raw materials to its distributors or markets in the Asia Pacific area and other foreign areas, and which has established or will simultaneously establish a RHQ or ROHQ in the Philippines, may also establish a regional warehouse or warehouses in special economic zones (Ecozones) in the Philippines.
The activities of the regional warehouse shall be limited to:
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serving as a supply depot for the storage, deposit and safekeeping of its spare parts, components, semi-finished products and raw materials, including packing, covering, putting up, marking, labeling, and cutting or altering to customer’s specification, mounting, and/or packaging into kits or marketable lots thereof; and filling up transactions and sales made by its head offices or parent companies; and
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serving as a storage or warehouse of goods purchased locally by the home office of the multinational for export abroad.
The regional warehouse may not directly engage in trade nor directly solicit business, promote any sale, nor enter into any contract for the sale or disposition of goods in the Philippines.
REGULATORY APPROVALS & REGISTRATIONS
The incorporation of a domestic corporation must be approved by the SEC.
A foreign corporation that will engage in business in the Philippines through any of the corporate vehicles discussed above must register such corporate vehicle with the SEC.
After incorporation of a domestic corporation, and registration of a foreign corporation, with the SEC, the corporation must comply with certain basic registration and licensing requirements with various government agencies. These post-registration requirements include obtaining a local business permit from the local government unit in the principal place of business of the corporation, and certain registrations and licenses from the BIR, and employee-welfare agencies.
In addition to the basic post-registration requirements, certain businesses in highly regulated industries may be subject to special licensing or registration requirements with the government agency having jurisdiction over such industry.
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CORPORATE GOVERNANCE STRUCTURE: GOVERNANCE, CORPORATE OFFICERS, STOCKHOLDERS
Domestic Corporations
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The Corporation Code provides for the corporate governance structure and requirements of a domestic corporation.
All business conducted and all property of a domestic corporation are generally controlled by the board of directors, which shall consist of at least 5 but not more than 15 individuals. Each director must hold at least one share in the corporation. As a rule, foreign nationals may be directors of a domestic corporation, subject to applicable restrictions for corporations that engage in nationalized or partially nationalized activities. Majority of the directors of a domestic corporation must be Philippine residents.
For purposes of the residency requirements under the Corporation Code, current policies of the SEC consider a foreigner residing in the Philippines with a valid work permit / visa as a Philippine resident.
Corporate acts of a corporation generally require approval of the board of directors, in a meeting held in person or by telephone conference.
For certain fundamental actions of the corporation, approval of stockholders is also required in addition to the approval of the board of directors.
The notice, quorum and voting requirements for such meetings of the board of directors and the stockholders are governed by Corporation Code and the by-laws of the corporation.
Foreign Corporations (e.g. branch office, representative office, etc.)
The Corporation Code requires foreign corporations doing business in the Philippines to appoint a resident agent in the Philippines to whom summons and legal processes may be served.
A registered foreign corporation, being an extension of its foreign head office, is not required to have its own board of directors or stockholders. Corporate governance matters of such a foreign corporation are governed by the laws of incorporation of the foreign head office, subject only to certain actions that require approval of the SEC.
