DID it really take the Securities and Exchange Commission (SEC) more than a year to respond to a legal query posed by Quisumbing Torres law offices? Or is the date of letter of the lawyers, January 13, 2013, only a typographical error that the year should be 2014? If it is the latter, then the SEC was real quick in giving legal opinion, which was dated Feb. 21, 2014.
It is only right for foreigners who invest in this country to seek the guidance of the SEC to ensure that that their venture would be legal. When in doubt, there is only one agency to turn to and this is the SEC, as the government corporate watchdog.
In its letter to the SEC, Quisumbing Torres wanted to know if its client was still required to obtain a license to do business in the Philippines. It went to the SEC for confirmation that “a foreign corporation is not required to obtain a license to transact business in the Philippines, if such member of the consortium is not the operator thereof, and such foreign corporation will be a minority non-controlling interest in the consortium.”
“Instead of shares of stock,” the law firm told the SEC, “a member of the consortium would hold a participating percentage interest, which pertains to the percentage that a member of the consortium will contribute to the joint venture for exploration, drilling and production costs.”
When a legal poser is sent to the SEC, the sender usually justifies its position which, more often than not, is in favor of the client. This was what Quisumbing Torres did and was probably disappointed that the SEC did not agree with it.
Instead of confirming Quisumbing Torres’s stand, the SEC was disappointing in its response. The commission ruled that “the subject foreign corporation still needs to obtain a license to do business in the Philippines under the Foreign Investment Act of 1991” even if “it holds a minority and non-controlling interest in the consortium.”
The SEC is correct. If Filipino-owned companies are required to be licensed to go engage in business, why should foreign companies be exempted from the rule even if the latter have more money to spend on speculative ventures. In short, they, unlike most Filipino businesses, are not afraid to bet on risky ventures as oil and mining exploration.
Does the Philippines really limit foreign ownership in companies that require 60 percent control by Filipinos?. After all, it could be circumvented without violating the law. The previous piece on “The Irony of Corporate ownership” showed how an entity in which a 60-40 Filipino company holds 60 percent and a 100 percent foreigner-owned owns 40 percent holdings end up being 64-percent controlled by foreigners.
By computing the ratio, you would arrive at 36-64 ownership ratio in favor of foreigners because a 60-40 Filipino controlled corporation is treated as 100-percent Filipino when going into business with a 100-percent owned by foreigners. You would arrive at 36-64 ratio by getting 40 percent of 60 equals 24 plus 40 percent foreign ownership equals 64 percent.
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REMINDER. When you register a business with the SEC, your responsibility does not end after you receive your certificate of registration. You are still required to update your company files every year by filing general information sheets and audited financial statements.
If you company is among those registered in 2007 and has not filed the required reports from 2008 to 2012, the SEC is giving you until December 31, 2015to update your company’s filings. Otherwise, your business might end up automatically revoked should you fail to avail yourself of the SEC two-year grace period to comply with its reportorial requirements.