The Corporation Code of the Philippines 11

THE CORPORATION CODE OF THE PHILIPPINES
[Batas Pambansa Blg. 68]

TITLE XI

NON-STOCK CORPORATIONS

Section 87. Definition. – For the purposes of this Code, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of this Code on dissolution: Provided, That any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this Title.

The provisions governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except as may be covered by specific provisions of this Title. (n)

Section 88. Purposes. – Non-stock corporations may be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes of non-stock corporations. (n)

Chapter I – MEMBERS

Section 89. Right to vote. – The right of the members of any class or classes to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws. Unless so limited, broadened or denied, each member, regardless of class, shall be entitled to one vote.

Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote by proxy in accordance with the provisions of this Code. (n)

Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of non-stock corporations with the approval of, and under such conditions which may be prescribed by, the Securities and Exchange Commission.

Section 90. Non-transferability of membership. – Membership in a non-stock corporation and all rights arising therefrom are personal and non-transferable, unless the articles of incorporation or the by-laws otherwise provide. (n)

Section 91. Termination of membership. – Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. Termination of membership shall have the effect of extinguishing all rights of a member in the corporation or in its property, unless otherwise provided in the articles of incorporation or the by-laws. (n)

Chapter II – TRUSTEES AND OFFICERS

Section 92. Election and term of trustees. – Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of their number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period.

No person shall be elected as trustee unless he is a member of the corporation.

Unless otherwise provided in the articles of incorporation or the by-laws, officers of a non-stock corporation may be directly elected by the members. (n)

Section 93. Place of meetings. – The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings at any place even outside the place where the principal office of the corporation is located: Provided, That proper notice is sent to all members indicating the date, time and place of the meeting: and Provided, further, That the place of meeting shall be within the Philippines. (n)

Chapter III – DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS

Section 94. Rules of distribution. – In case dissolution of a non-stock corporation in accordance with the provisions of this Code, its assets shall be applied and distributed as follows:

1. All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provision shall be made therefore;

2. Assets held by the corporation upon a condition requiring return, transfer or conveyance, and which condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in accordance with such requirements;

3. Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by reason of the dissolution, shall be transferred or conveyed to one or more corporations, societies or organizations engaged in activities in the Philippines substantially similar to those of the dissolving corporation according to a plan of distribution adopted pursuant to this Chapter;

4. Assets other than those mentioned in the preceding paragraphs, if any, shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws, to the extent that the articles of incorporation or the by-laws, determine the distributive rights of members, or any class or classes of members, or provide for distribution; and

5. In any other case, assets may be distributed to such persons, societies, organizations or corporations, whether or not organized for profit, as may be specified in a plan of distribution adopted pursuant to this Chapter. (n)

Section 95. Plan of distribution of assets. – A plan providing for the distribution of assets, not inconsistent with the provisions of this Title, may be adopted by a non-stock corporation in the process of dissolution in the following manner:

The board of trustees shall, by majority vote, adopt a resolution recommending a plan of distribution and directing the submission thereof to a vote at a regular or special meeting of members having voting rights. Written notice setting forth the proposed plan of distribution or a summary thereof and the date, time and place of such meeting shall be given to each member entitled to vote, within the time and in the manner provided in this Code for the giving of notice of meetings to members. Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the members having voting rights present or represented by proxy at such meeting. (n)

The Corporation Code of the Philippines
TITLE I General Provisions
TITLE II Incorporation and Organization of Private Corporations
TITLE III Board of Directors Trustees Officers
TITLE IV Powers of Corporations
TITLE V By Laws
TITLE VI Meetings
TITLE VII Stocks and Stockholders
TITLE VIII Corporate Books and Records
TITLE IX Merger and Consolidation
TITLE X Appraisal Right
TITLE XI Non-Stock Corporations
TITLE XII Close Corporations
TITLE XIII Special Corporations
TITLE XIV Dissolution
TITLE XV Foreign Corporations
TITLE XVI Miscellaneous Provisions

The Corporation Code of the Philippines 9

THE CORPORATION CODE OF THE PHILIPPINES
[Batas Pambansa Blg. 68]

TITLE IX

MERGER AND CONSOLIDATION

Section 76. Plan or merger of consolidation. – Two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation.

The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of merger or consolidation setting forth the following:

1. The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent corporations;

2. The terms of the merger or consolidation and the mode of carrying the same into effect;

3. A statement of the changes, if any, in the articles of incorporation of the surviving corporation in case of merger; and, with respect to the consolidated corporation in case of consolidation, all the statements required to be set forth in the articles of incorporation for corporations organized under this Code; and

4. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable. (n)

Section 77. Stockholder’s or member’s approval. – Upon approval by majority vote of each of the board of directors or trustees of the constituent corporations of the plan of merger or consolidation, the same shall be submitted for approval by the stockholders or members of each of such corporations at separate corporate meetings duly called for the purpose. Notice of such meetings shall be given to all stockholders or members of the respective corporations, at least two (2) weeks prior to the date of the meeting, either personally or by registered mail. Said notice shall state the purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation. The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be necessary for the approval of such plan. Any dissenting stockholder in stock corporations may exercise his appraisal right in accordance with the Code: Provided, That if after the approval by the stockholders of such plan, the board of directors decides to abandon the plan, the appraisal right shall be extinguished.

Any amendment to the plan of merger or consolidation may be made, provided such amendment is approved by majority vote of the respective boards of directors or trustees of all the constituent corporations and ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent corporations. Such plan, together with any amendment, shall be considered as the agreement of merger or consolidation. (n)

Section 78. Articles of merger or consolidation. – After the approval by the stockholders or members as required by the preceding section, articles of merger or articles of consolidation shall be executed by each of the constituent corporations, to be signed by the president or vice-president and certified by the secretary or assistant secretary of each corporation setting forth:

1. The plan of the merger or the plan of consolidation;

2. As to stock corporations, the number of shares outstanding, or in the case of non-stock corporations, the number of members; and

3. As to each corporation, the number of shares or members voting for and against such plan, respectively. (n)

Section 79. Effectivity of merger or consolidation. – The articles of merger or of consolidation, signed and certified as herein above required, shall be submitted to the Securities and Exchange Commission in quadruplicate for its approval: Provided, That in the case of merger or consolidation of banks or banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations governed by special laws, the favorable recommendation of the appropriate government agency shall first be obtained. If the Commission is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the provisions of this Code and existing laws, it shall issue a certificate of merger or of consolidation, at which time the merger or consolidation shall be effective.

If, upon investigation, the Securities and Exchange Commission has reason to believe that the proposed merger or consolidation is contrary to or inconsistent with the provisions of this Code or existing laws, it shall set a hearing to give the corporations concerned the opportunity to be heard. Written notice of the date, time and place of hearing shall be given to each constituent corporation at least two (2) weeks before said hearing. The Commission shall thereafter proceed as provided in this Code. (n)

Section 80. Effects or merger or consolidation. – The merger or consolidation shall have the following effects:

1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. (n)

The Corporation Code of the Philippines
TITLE I General Provisions
TITLE II Incorporation and Organization of Private Corporations
TITLE III Board of Directors Trustees Officers
TITLE IV Powers of Corporations
TITLE V By Laws
TITLE VI Meetings
TITLE VII Stocks and Stockholders
TITLE VIII Corporate Books and Records
TITLE IX Merger and Consolidation
TITLE X Appraisal Right
TITLE XI Non-Stock Corporations
TITLE XII Close Corporations
TITLE XIII Special Corporations
TITLE XIV Dissolution
TITLE XV Foreign Corporations
TITLE XVI Miscellaneous Provisions

The Corporation Code of the Philippines 4

THE CORPORATION CODE OF THE PHILIPPINES
[Batas Pambansa Blg. 68]

TITLE IV

POWERS OF CORPORATIONS

Section 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.

Section 37. Power to extend or shorten corporate term. – A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. (n)

Section 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. – No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholder’s meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholder’s meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.

A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders’ meeting, setting forth:

(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names, nationalities and residences of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness.

Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission.

One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.

Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose.

Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof. (17a)

Section 39. Power to deny pre-emptive right. – All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto: Provided, That such pre-emptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously contracted debt.

Section 40. Sale or other disposition of assets. – Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder’s or member’s meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

After such authorization or approval by the stockholders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members.

Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business.

In non-stock corporations where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section. (28 1/2a)

Section 41. Power to acquire own shares. – A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code. (n)

Section 42. Power to invest corporate funds in another corporation or business or for any other purpose. – Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder’s or member’s meeting duly called for the purpose. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall have appraisal right as provided in this Code: Provided, however, That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a)

Section 43. Power to declare dividends. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. (16a)

Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock, except: (1) when justified by definite corporate expansion projects or programs approved by the board of directors; or (2) when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured; or (3) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies. (n)

Section 44. Power to enter into management contract. – No corporation shall conclude a management contract with another corporation unless such contract shall have been approved by the board of directors and by stockholders owning at least the majority of the outstanding capital stock, or by at least a majority of the members in the case of a non-stock corporation, of both the managing and the managed corporation, at a meeting duly called for the purpose: Provided, That (1) where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation; or (2) where a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation, then the management contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case of a non-stock corporation. No management contract shall be entered into for a period longer than five years for any one term.

The provisions of the next preceding paragraph shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise: Provided, however, That such service contracts or operating agreements which relate to the exploration, development, exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. (n)

Section 45. Ultra vires acts of corporations. – No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. (n)

The Corporation Code of the Philippines
TITLE I General Provisions
TITLE II Incorporation and Organization of Private Corporations
TITLE III Board of Directors Trustees Officers
TITLE IV Powers of Corporations
TITLE V By Laws
TITLE VI Meetings
TITLE VII Stocks and Stockholders
TITLE VIII Corporate Books and Records
TITLE IX Merger and Consolidation
TITLE X Appraisal Right
TITLE XI Non-Stock Corporations
TITLE XII Close Corporations
TITLE XIII Special Corporations
TITLE XIV Dissolution
TITLE XV Foreign Corporations
TITLE XVI Miscellaneous Provisions

The Corporation Code of the Philippines 3

THE CORPORATION CODE OF THE PHILIPPINES
[Batas Pambansa Blg. 68]

TITLE III

BOARD OF DIRECTORS/TRUSTEES/OFFICERS

Section 23. The board of directors or trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified.

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be members thereof. a majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines.

Section 24. Election of directors or trustees. – At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest number of votes shall be declared elected. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the member entitled to vote.

Section 25. Corporate officers, quorum. – Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Section 26. Report of election of directors, trustees and officers. – Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and officers elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately report such fact to the Securities and Exchange Commission.

Section 27. Disqualification of directors, trustees or officers. – No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation.

Section 28. Removal of directors or trustees. – Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, That such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholdersor members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written notice prescribed in this Code. Removal may be with or without cause: Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code.

Section 29. Vacancies in the office of director or trustee. – Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only or the unexpired term of his predecessor in office.

A directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose, or in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting.

Section 30. Compensation of directors. – In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable pre diems: Provided, however, That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders’ meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

Section 31. Liability of directors, trustees or officers. – Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.

Section 32. Dealings of directors, trustees or officers with the corporation. – A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was nor necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

Section 33. Contracts between corporations with interlocking directors. – Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors.

Section 34. Disloyalty of a director. – Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture.

Section 35. Executive committee. – The by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to: (1) approval of any action for which shareholders’ approval is also required; (2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and (5) a distribution of cash dividends to the shareholders.

The Corporation Code of the Philippines
TITLE I General Provisions
TITLE II Incorporation and Organization of Private Corporations
TITLE III Board of Directors Trustees Officers
TITLE IV Powers of Corporations
TITLE V By Laws
TITLE VI Meetings
TITLE VII Stocks and Stockholders
TITLE VIII Corporate Books and Records
TITLE IX Merger and Consolidation
TITLE X Appraisal Right
TITLE XI Non-Stock Corporations
TITLE XII Close Corporations
TITLE XIII Special Corporations
TITLE XIV Dissolution
TITLE XV Foreign Corporations
TITLE XVI Miscellaneous Provisions

Implementing Rules & Regulations of the Foreign Investments Act of 1991

[Republic Act No. 7042]

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER PURPOSES

RULE I
DEFINITIONS

SECTION 1. Definition of Terms. – For the purpose of these Rules and Regulations:

a.  “Act” shall refer to Republic Act 7042 entitled “An Act to Promote Foreign Investments, Prescribe the Procedures for Registering Enterprises Doing Business in the Philippines, and for Other Purposes”, also known as the Foreign Investments Act of 1991, as amended.

b.  “Philippine national” shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals.

c.  “Foreign corporation” shall mean one which is formed, organized or existing under laws other than those of the Philippines.

Branch office of a foreign company carries out the business activities of the head office and derives income from the host country.

Representative or liaison office deals directly, with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office. It undertakes activities such as but not limited to information dissemination and promotion of the company’s products as well as quality control of products.

d.  Investment shall mean equity participation in any enterprise organized or existing under the laws of the Philippines. It includes both original and additional investments, whether made directly as in stock subscription, or indirectly through the transfer of equity from one investor to another as in stock purchase. Ownership of bonds [including income bonds], debentures, notes or other evidences of indebtedness does not qualify as investments.

The purchase of stock options or stock warrants is not an investment until the holder thereof exercises his option and actually acquires stock from the corporation.

e.  “Foreign investment” shall mean an equity investment made by a non-Philippine national; Provided, however, That for purposes of determining foreign ownership, peso investments made by non-Philippine nationals shall be considered; Provided, further, That only foreign investments in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank (CB) and profits derived therefrom can be repatriated; and Provided, finally, That, for purposes of Section 8 of the Act, and Rule VIII, Section 6 of these Rules and Regulations, “Existing Foreign Investments” shall mean an equity investment made by a non-Philippine national duly registered with the SEC or the Bureau of Trade Regulation and Consumer Protection (BTRCP) in the form of foreign exchange and/or other assets transferred to the Philippines.

f.  “Doing business” shall include soliciting orders, service contracts, opening offices, whether liaison offices or branches; appointing representatives or distributors, operating under full control of the foreign corporation, domiciled in the Philippines or who in any calendar year stay in the country for a period totaling one hundred eighty [180] days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to and in progressive prosecution of commercial gain or of the purpose and object of the business organization.

The following acts shall not be deemed “doing business” in the Philippines:

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

2.  Having a nominee director or officer to represent its interest in such corporation;

3.  Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account;

4.  The publication of a general advertisement through any print or broadcast media;

5.  Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

6.  Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;

7.  Collecting information in the Philippines; and

8.  Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

g.  “Export enterprise” shall mean an enterprise wherein a manufacturer, processor or service [including tourism] enterprise exports sixty percent [60%] or more of its output, or wherein a trader purchases products domestically and exports sixty percent [60%] or more of such purchases.

h.  “Exports” shall mean the volume of the Philippine port F. O. B. peso value, determined from invoices, bills of lading, inward letters of credit, loading certificates, and other commercial documents, of products exported directly by an export enterprise or the value of services including tourism sold by service-oriented enterprises to non-resident foreigners or the net selling price of export products sold by an export enterprise to another export enterprise that subsequently exports the same; Provided, That sales of export products to another export enterprise shall only be deemed exports when actually exported by the latter, as evidenced by loading certificates or similar commercial documents; and Provided, finally, That without actual exportation, the following shall be considered constructively exported for purposes of the Act: [1] sales of products to bonded manufacturing warehouses of export enterprises; [2] sales of products to export processing zone enterprises; [3] sales of products to export enterprises operating bonded trading warehouses supplying raw materials used in the manufacture of export products; and [4] sales of products to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities of locally manufactured, assembled or repacked products whether paid for in foreign currency or pesos funded from inwardly remitted foreign currency.

Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning overseas Filipinos under the Internal Export Program of the Government and paid for in convertible foreign currency inwardly remitted through the Philippine banking system shall also be considered exports.

i.  “Output” shall refer to the export enterprise’s total sales in a taxable year. The term sales shall refer to the value in case of heterogeneous products and volume in case of homogeneous products.

Heterogeneous products shall refer to products of different kinds and characteristics as well as to those of the same kind but with various categories using different units of measurement.

Homogeneous products shall refer to products of the same kind or category using a common unit of measurement.

j.  “Export ratio” shall refer to:

1.  the percentage share of the volume or peso value of goods exported to the total volume or value of goods sold in any taxable year if the export enterprise is engaged in manufacturing or processing;

2.  the percentage share of the peso value of services sold to foreigners to total earnings or receipts from the sale of its services from all sources in any taxable year if the export enterprise is service-oriented; Value of services sold shall refer to the peso value of all services rendered by an export enterprise to foreigners that are paid for in foreign currency and/or pesos funded from inwardly remitted foreign currency as properly documented by the export enterprise; or

3.  the percentage share of the volume or peso value of goods exported to the total volume or value of goods purchased domestically in any taxable year if the export enterprise is engaged in merchandise trading.

k.  “Domestic market enterprise” shall mean an enterprise which produces goods for sale, or renders service or otherwise engages in any business in the Philippines.

l. “Joint venture” shall mean two or more entities, whether natural or juridical, one of which must be a Philippine national, combining their property, money, efforts, skills or knowledge to carry out a single business enterprise for profit, which is duly registered with the SEC as a corporation or partnership.

m.  “Substantial partner” shall mean an individual or a firm who owns enough shares to be entitled to at least one [1] seat on the Board of Directors of a corporation, or in the case of a partnership, any partner.

n.  “Dangerous drug” as defined under Republic Act 6425 or the Dangerous Drugs Act, as amended, refers to either:

1. “Prohibited drug” which includes opium and its active components and derivatives, such as heroin and morphine; coca leaf and its derivatives, principally cocaine; alpha and bet eucaine; hallucinogenic drugs, such as mescaline, lysergic and dicthlylamide [LSD] and other substances producing similar effects; Indian hemp and its derivatives; all preparations made from any of the foregoing; and other drugs and chemical preparations whether natural or synthetic, with the physiological effects of a narcotic or hallucinogenic drug; or

2.  “Regulated drug” which includes, unless authorized by the Department of Health [DOH] and in accordance with the Dangerous Drugs Board, self-inducing sedatives, such as secobarbital, phenobarbital, pentobarbital, barbital, amobarbital or any other drug which contains a salt or a derivative of salt of barbituric acid; any salt, isomer, or salt of an isomer, of amphetamine such as benzedrine or dexedrine, or any drug which produces a physiological action similar to amphetamine; and hypnotic drugs, such as methaqualone, nitrazepam or any other compound producing similar physiological effects.

o.  “Advanced technology” refers to a higher degree or form of technology than what is domestically available and needed for the development of certain industries as subject to guidelines of the Department of Science and Technology [DOST].  Its introduction into the country through foreign investments under the terms and conditions of the Act must be linked to its appropriateness and adaptability to local conditions with a view towards eventual transfer and applicability including the upgrading of the indigenous technology available.

p.  “Paid-in equity capital” shall mean the total investment in a business that has been paid-in in a corporation or partnership or invested in a single proprietorship, which may be in cash or in property. It shall also refer to inward remittance or assigned capital in the case of foreign corporations.

q. “Foreign Investment Negative List [FINL]” or “Negative List” shall mean a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent [40%] of the outstanding capital stock in the case of a corporation, or capital in the case of a partnership.

r.  “NEDA Board” shall refer to the body constituted as such under Executive Order No. 230 entitled “Reorganizing the National Economic and Development Authority” and in which reside the powers and functions of the Authority.

s.  “NEDA” shall refer to the NEDA Secretariat, which is the body constituted as such under Executive Order No. 230 and which serves as the research and technical support arm and the Secretariat of the NEDA Board.

t.  “SEC” shall refer to the Securities and Exchange Commission.

u.  “BTRCP” shall refer to the Bureau of Trade Regulation and Consumer Protection as represented by the provincial offices of the Department of Trade and Industry [DTI].

v.  “BOI” shall refer to the Board of Investments.

w.  “Technology Transfer Board” shall refer to the Bureau of Patents, Trademarks and Technology Transfer (BPTTT).

x.  “Former natural born Filipino” shall mean those who have lost Philippine citizenship but were previously citizens of the Philippines falling in either of the following categories: [a] from birth without having to perform any act to acquire or perfect their Philippine citizenship; or [b] by having elected Philippine citizenship upon reaching the age of majority, if born before January 17, 1973, of a Filipino mother.

y.  “Transferee of private land” shall mean a person to whom the ownership rights of private land is transferred through either voluntary or involuntary sale, devise or donation or involuntary executions of judgment.

z.  “Direct employees” shall mean Filipino personnel hired and engaged under the control and supervision of the applicant investor/employer in the production of goods or performance of services. Excluded from this definition are personnel hired as casual, seasonal, learner, apprentice or any employee of subcontractor or those under fixed term employment.

aa.  “Start of commercial operation” shall mean the date when a particular enterprise actually begins production of the product for commercial purposes or commercial harvest in the case of agricultural activities. In the case of export traders and service exporters, the date when the initial export shipment in commercial quantity has been made or initial performance of service as borne out by the appropriate supporting documents.

RULE II
SCOPE

SECTION 1. Coverage. – The Act covers all investment areas or areas of economic activity except banking and other financial institutions which are governed and regulated by the General Banking Act and other laws under the supervision of the CB.

RULE III
BASIC GUIDELINES

SECTION 1. The Act covers restrictions pertaining to foreign equity participation only. All other regulations governing foreign investments remain in force.

SECTION 2. Monitoring of compliance with equity participation requirements. – The SEC or BTRCP, as applicable, shall monitor the compliance with the equity requirements of the Act.

RULE IV
REGISTRATION OF INVESTMENTS OF NON-PHILIPPINE NATIONALS

SECTION 1. Qualifications. –

a.  Any non-Philippine national may do business or invest in a domestic enterprise up to one hundred percent [100%] of its capital provided:

1.  it is investing in a domestic market enterprise in areas outside the FINL; or
2.  it is investing in an export enterprise whose products and services do not fall within Lists A and B [except for defense-related activities, which may be approved pursuant to Section 8(b)(1) of the Act] of the FINL.

Provided,  further,  That, as required by existing laws, the country or state of the applicant must also allow Filipino citizens and corporations to do business therein.

b.  Non-Philippine nationals qualified to do business per paragraph [a] above, but who will engage in more than one investment area, one or more of which is in the FINL, may be registered under the Act. However, said non-Philippine national will not be allowed to engage in the investment areas which are in the FINL.

c.  Existing enterprises which are non-Philippine nationals at the time of effectivity of the Act and which intend to increase the percentage of foreign equity participation under the Act, beyond that previously authorized by SEC, shall be governed by the qualifications in item [a] above. Thus, existing enterprises shall be allowed to increase the percentage share of foreign equity participation beyond current equity holdings only if their existing investment area is not in the FINL. Similarly, existing enterprises engaged in more than one [1] investment area shall be allowed to increase percentage of foreign equity participation if none of the investment areas they are engaged in is in the FINL.

Existing foreign corporations shall be allowed to increase capital even if their existing investment area is in the FINL.

Transfer of ownership from one foreign company to another shall be allowed even if the enterprise is engaged in an area in the FINL as long as there is the percentage share of foreign equity.

SECTION 2. Application for registration. –

a.  Filing of Application. Applications for registration shall be filed with the SEC in the case of foreign corporations and domestic corporations or partnerships which are non-Philippine nationals. In the case of single proprietorships, applications for Metro Manila shall be filed with the BTRCP or the DTI-National Capital Region. In the provinces, applications may be filed with the extension offices of the SEC for corporations/partnerships and the provincial offices of the DTI for sole proprietorships.

b.  Pre-Processing of Documents. Pre-processing of documents shall be undertaken to assist the investor in determining the completeness of his documents. All applications are considered officially accepted only upon submission of complete documents to either the SEC or BTRCP. Applications for clearances from the Department of National Defense [DND] or Philippine National Police [PNP] for defense-related activities, or the DOST for investments involving advanced technology shall be decided upon by said agencies within fifteen [15] working days.

c.  Approval. Within fifteen [15] working days from official acceptance of an application, the SEC or BTRCP shall act on the same. Otherwise, the application shall be considered as automatically approved if it is not acted upon within said period for a cause not attributable to the applicant.

SECTION 3. Registration with the SEC. –

a.  Existing Requirements. As required by existing laws and regulations, an application form together with the following documents shall be submitted to the SEC:

1.  In the case of new domestic corporation or a partnership:

i.    Articles of Incorporation/Partnership

ii.   Name Verification Slip

iii.  Bank Certificate of Deposit

iv. ACR/ICR, SIRV [Special Investors Resident Visa], Visa No. 13 of the alien subscribers

v.  Proof of Inward Remittance [for non-resident aliens]

2.  In the case of a foreign corporation:

i.   Name verification slip

ii.  Certified Copy of the Board Resolution authorizing the establishment of an office in the Philippines; designating the resident agent to whom summons and other legal processes may be served in behalf of the foreign corporation; and stipulating that in the absence of such agent or upon cessation of its business in the Philippines, the SEC shall receive any summons or legal processes as if the same is made upon the corporation at its home office.

iii.  Financial statements for the immediately preceding year at the time of filing of the application, certified by an independent Certified Public Accountant of the home country.

iv.  Certified copies of the Articles of Incorporation/Partnership with an English translation thereof,  if in a foreign language.

v.  Proof of inward remittance such as bank certificate of inward remittance or credit advices.
For representative offices, the amount remitted initially should be at least US$30,000.

If the paid-in equity/capital is in kind, additional requirements shall be submitted to the SEC pursuant to its existing rules and regulations.

All documents executed abroad should be authenticated by the Philippine Embassy or Consular Office.

3.  In the case of an existing corporation intending to increase foreign equity participation, all documents required of the proposed transaction under applicable laws, rules and regulations shall be submitted.

b.  Additional Requirements. As required by the Act, the following shall be submitted to the SEC:

1.  For enterprises wishing to engage in defense-related activities, clearance from the Department of National Defense [DND] or Philippine National Police [PNP].

2.  For small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of US$200,000 but not less than the equivalent of US$100,000, a certificate from the Department of Science and Technology [DOST] that the investment involves advance technology, or a certificate from the appropriate Department of Labor and Employment [DOLE] Regional Office that the enterprise has issued an undertaking to employ at least 50 direct employees shall be submitted.

The Dole through its Regional Offices, shall validate and monitor compliance by the investor to the undertaking that it will hire at least 50 direct employees within six [6] months from the start of commercial operations. Non-satisfaction of the undertaking shall be reported to the DOLE Regional Offices and to the SEC, which shall cause the investor to satisfy the appropriate higher investment requirement, with penalty for failure to satisfy the undertaking.

3.  For former natural-born Filipinos wishing to engage in investment areas allowed to them under this Act, the following documents are required:

I. Copy of birth certificate

a.  Certified by the local civil registrar or the National Statistics Office [NSO]; or

b.  For those born abroad, certificate of birth from the appropriate government agency of the country where the birth is recorded showing the father or mother to be a Filipino at the time of birth or if the citizenship of the parents is not indicated, additional proof that the parent is a Filipino at the time of the applicant investor’s birth.

II.  Those born before 17 January 1973 of Filipino mother must additionally submit all of the following: certified true copies of his/her sworn statement of election of Filipino citizenship, oath of allegiance from the civil registrar where the documents were filed and/or forwarded, and identification certificate issued by the Bureau of Immigration.

III.  In case of loss and/or destruction of the record of birth or non-registration of birth.

• Certificate of non-availability of birth certificate on account of loss and/or destruction of birth record from the local civil registrar and/or appropriate government agency if birth was registered abroad;
• Copy of birth certificate of mother or father certified by the local civil registrar or the NSO; and
• Affidavit of two [2] disinterested persons attesting to their personal knowledge that at the time of the applicant’s birth, the child was born of a Filipino mother or father.

Any document executed or issued abroad must be authenticated by the Philippine embassy or consulate having jurisdiction over the place of execution or issuance of the document.

c.  Application Fee. A reasonable application fee to be determined by the SEC shall be collected from each applicant.

d.  SEC Action. Upon fulfillment of all SEC requirements and favorable evaluation by the SEC, the Certificate of Registration under the Act for domestic corporations and partnerships, or license to do business in the case of a foreign corporation, shall be issued by the SEC. In case of disapproval, the SEC shall also inform the applicant in writing of the reasons for the disapproval of the registration.

SECTION 4. Registration with the BTRCP-Department of Trade and Industry. – .

a.  Existing Requirements. As required by existing laws and regulations, BTRCP Form No. 17 and accompanying documents shall be submitted to BTRCP.

All documents executed abroad should be authenticated by the Philippine Embassy or Consular Office.

b.  Additional Requirements. The additional requirements for corporations and partnerships provided under Sec. 3[b] hereof shall be complied with.

c.  Application Fee. A reasonable application fee to be determined by BTRCP shall be collected from each applicant.

d.  BTRCP-DTI Action. Upon fulfillment of all BTRCP-DTI requirements and favorable evaluation by DTI, the Certificate of Registration for Sole Proprietorship shall be issued by DTI. In case of disapproval, DTI shall also inform the applicant in writing of the reasons for the disapproval of the registration.

SECTION 5. Registration of non-Philippine nationals intending to engage in the same line of business as their existing joint venture. –

a.  During the transitory period, any applicant who has an investment in an existing joint venture, in which he or his majority shareholder in the existing joint venture is a substantial partner, shall be registered with the SEC or BTRCP in the same line of business if the Filipino partners representing the majority of the Filipino equity in the existing joint venture certify under oath that they are not capable and willing to make the investment needed for the domestic market activities, which is being proposed to be undertaken by the applicant.

b.  If the Filipino partners are willing and able to make the needed investment, the SEC shall not register the applicant, in which case, both joint venture partners may agree to undertake the expansion. Both partners are then required to place the balance of their agreed upon investment shares within six [6] months from the date of the agreement. The Filipino partner[s] shall not be compelled to make additional investment for the proposed expansion of domestic market activities, if such will result in a higher Filipino equity share. If the Filipino partner[s] fails to infuse said capital within said period, per the report of the non-Philippine national applicant to the SEC, the SEC or BTRCP shall then allow the registration of said non-Philippine national applicant as a separate enterprise under the Act.

RULE V
REGISTRATION WITH THE CENTRAL BANK

SECTION 1. CB Requirements. – Enterprises seeking to remit foreign exchange abroad for purposes of remittance of profits and dividends and capital repatriation in connection with the foreign investment made pursuant to the Act shall be deemed registered with the CB after SEC or BTRCP registration. For this purpose, CB rules and regulations covering procedures for registration of foreign investments shall be observed.

RULE VI
FOREIGN INVESTMENTS IN EXPORT ENTERPRISES

SECTION 1. Allowable foreign equity participation. – Foreign equity participation in export enterprises shall be allowed up to one hundred percent [100%] provided that the products and services of such enterprises do not fall within Lists A and B of the FINL.

SECTION 2. Registration of export enterprises. – Export enterprises shall be deemed registered with the BOI pursuant to Section 6 of the Act upon registration with the SEC or BTRCP.

Enterprises registered under the Act seeking to avail of incentives under E. O. 226 must apply for registration with the BOI.  Rules and regulations on E. O. 226 shall be observed for this purpose.

Within ten [10] working days from the issuance of the certificate of registration, the SEC or BTRCP shall transmit to BOI copies of the Certificate of Registration together with the application form duly accomplished by the export enterprises.

SECTION 3. Submission of reports.  – All duly-registered export enterprises under this Rule shall submit to the Board of Investment a duly accomplished form within six [6] months after the end of each taxable year.

Failure of export enterprises to submit the required reports within the prescribed period of time or the submission of fraudulent reports shall be a ground for the SEC or BTRCP to impose appropriate sanctions as provided for under Rule XVII, Section 1, of these Rules and Regulations.

SECTION 4. Monitoring of compliance with the export requirement. – Upon receipt of the report submitted by the export enterprise, the BOI shall determine compliance of the enterprise with the export requirement. If the enterprise fails to comply with the export requirement, the BOI shall advise the SEC or BTRCP of said failure. The SEC or BTRCP shall require the firm to immediately increase its export to at least sixty percent [60%] of total sales. If the firm fails to comply with the order of the SEC or BTRCP without any justifiable reason, it shall be penalized in accordance with the provisions of Rule XVIII, Section 1 of these Implementing Rules and Regulations. The BOI, in consultation with the SEC and BTRCP, shall issue guidelines for this purpose.

RULE VII
FOREIGN INVESTMENTS IN DOMESTIC MARKET ENTERPRISES

SECTION 1. Allowable foreign equity participation. – Foreign equity participation in domestic market enterprises shall be allowed up to one hundred percent [100%] unless such participation is prohibited or limited by existing laws or the FINL.

SECTION 2. Change of status from domestic market enterprise to export enterprise. – At its option, a domestic market enterprise may change its status to an export enterprise if, over the last three [3] years, it consistently exported in each year thereof sixty percent [60%] or more of its output.

Section 2 of Rule VI shall apply for any change of status from domestic to export enterprise. Such application shall be supported by the relevant reports cited in Rule VI, Section 3 hereof, as evidence that the applicant enterprise has consistently exported sixty percent [60%] or more of its output.

The new export enterprise shall be subject to the reportorial requirements and shall be monitored or its compliance with the export requirement under Sections 3 and 4, respectively, of Rule VI of these Rules and Regulations.

RULE VIII
THE REGULAR FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Description. – The Regular FINL shall have three [3] component list: A, B, and C which shall contain areas of economic activities reserved to the Philippine nationals. The description and guidelines governing Lists A, B and C are provided for in Rules IX, X and XI hereof, respectively.

SECTION 2. Formulation. – The NEDA shall be responsible for the formulation of the Regular FINL, following the process and criteria provided in Section 8 of the Act and in Rules IX, X and XI hereof.

SECTION 3. Approval.  – The NEDA shall submit the proposed Regular FINLs to the President for approval and promulgation. The NEDA shall submit the first Regular FINL to the President at least forty five [45] days before the scheduled date of publication.

SECTION 4. Publication. – The NEDA shall publish the first Regular Negative List not later than sixty [60] days before the end of the transitory period.

SECTION 5. Effectivity. – The first Regular Negative List shall become immediately effective at the end of the transitory period. Subsequent Regular FINLs shall become effective fifteen [15] days after publication in two [2] newspapers of general circulation in the Philippines.  Except for List A, each Regular FINL shall remain in force for two [2] years from the date of its effectivity.

SECTION 6. Coverage of operation. – Each Regular FINL shall apply only to new foreign investments and shall not affect existing foreign investments at the time of its publication.

RULE IX
GUIDELINES FOR LIST A OF THE REGULAR FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Coverage. – List A of the FINL shall consist of the areas of activities reserved to Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed therein shall be limited to a maximum of forty percent [40%] as prescribed by the Constitution and other specific laws.

The NEDA shall make an enumeration of said activities reserved to Philippine nationals by the Constitution and other specific laws.

SECTION 2. Amendments.  – Amendments to List A may be made by the NEDA anytime to reflect changes made by law regarding the extent of foreign equity participation in any specific area of economic activity.

RULE X
GUIDELINES FOR LIST B
OF THE REGULAR FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Coverage. – List B shall consist of the following:

a.  Activities regulated pursuant to law which are defense or law enforcement-related, requiring prior clearance and authorization from the DND or PNP, to engage in such activity as the manufacture, repair, storage and/or distribution of firearms, ammunition, armored vests and other bullet proof attires, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials.

However, the manufacture and repair of said items may be specifically authorized by the Secretary of National Defense or Chief of the PNP to non-Philippine nationals, provided a substantial percentage of output as determined by said agencies is exported.

Compliance with the export requirement shall be monitored by the DND or PNP, as the case may be.

b.  Activities which have negative implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; sauna and steam bathhouses and massage clinics.

c.  Small and medium-sized domestic market enterprises with paid-in capital of less than US$500,000 or its equivalent unless they involve advanced technology as determined by DOST.

d.  Export enterprises utilizing raw materials from depleting natural resources, with paid-in equity capital of less than US$500,000 or its equivalent.

SECTION 2. Process for determination of List B. –

a.  Activities [a] and [b] above shall be determined upon recommendation of the Secretary of National Defense, Chief of the PNP, Secretaries of Health or Education, Culture and Sports and endorsed by the NEDA or upon recommendation motu proprio of NEDA, approved and promulgated by the President. List B shall be submitted for Presidential action together with List A. The NEDA shall inform said agencies of the deadline for the submission of their recommendations.

b.  Enterprises which are covered by Section 1 [c] above are automatically reserved to Philippine nationals.

SECTION 3. Amendments.  – Amendments to List B shall be made only after two years, upon the recommendation of the Secretary of National Defense, Chief of the PNP, Secretaries of Health and Education, Culture and Sports, endorsed by the NEDA, or upon recommendation motu proprio of NEDA, approved and promulgated by the President. List B shall be submitted for Presidential action together with List A.

RULE XI
INVESTMENT RIGHTS OF FORMER NATURAL BORN FILIPINOS

SECTION 1. Former natural-born citizens of the Philippines shall have the same investment rights of a Philippine citizen in cooperatives under R. A. 6938, rural banks under R. A.  7353, thrift banks and private development banks under R. A. 7906, financing companies under R. A. 5980, and activities listed under List B including defense-related activities, if specifically authorized by the Secretary of National Defense

RULE XII
RIGHTS OF FORMER NATURAL-BORN FILIPINOS TO OWN PRIVATE LAND

SECTION 1. Any natural-born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine laws may be a transferee of a private land up to a maximum area of 5,000 square meters in the case of urban or three [3] hectares in the case of rural land to be used by him for business or other purposes.

SECTION 2. In case where both spouses are qualified under the law, one of them may avail of the said privilege. However, if both shall avail of the privilege, the total area acquired shall not exceed the maximum allowed.

SECTION 3. In case the transferee already owns urban or rural land for business or other purposes, he shall still be entitled to be a transferee of additional urban or rural land for business or other purposes, which when added to those already owned by him shall not exceed the maximum areas allowed.

SECTION 4. A transferee may acquire not more than two [2] lots which should be situated in different municipalities or cities anywhere in the Philippines. The total land area acquired shall not exceed 5,000 square meters in the case of urban land or three [3] hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified from acquiring rural land and vice versa. However, if the transferee has disposed of his urban land, he may still acquire rural land and vice versa, provided that the same shall be used for business or other purposes.

SECTION 5. Land acquired under this Act shall be primarily, directly and actually used by the transferee in the performance or conduct of his business or commercial activities in the broad areas of agriculture, industry, and services, including the lease of land, but excluding the buying and selling thereof.  A transferee shall use his land to engage in activities that are not included in the Negative List or in those areas wherein investment rights have been granted to him under this Act.

SECTION 6. Registration of land. – The Register of Deeds in the province or city where the land is located shall register the land in the name of the transferee that it will be used for any of the purposes mentioned in Section 5 above, i.e., certification of business registration issued by the BTRCP/Department of Trade and Industry and affidavit that the land shall be used for business purposes.

The provision of B. P. 185 [An Act to Implement Section 15 of Article XIV of the Constitution and for Other Purposes Pertaining to the Ownership of Private Lands for Residential Purposes by Former Natural Born Filipinos] and its implementing Rules and Regulations shall be adopted, where applicable, in the implementation of this Act through a Circular to be issued by the Land Registration Authority.

The Register of Deeds shall also ensure that the limits prescribed by law are observed.

RULE XIII
TRANSITORY PROVISIONS

SECTION 1. Prior to effectivity of these Implementing Rules and Regulations, the provisions of Book II of E. O. 226 and its implementing rules and regulations shall govern the registration of foreign investments without incentives.

SECTION 2. There shall be a transitory period of thirty-six [36] months after issuance of these Implementing Rules and Regulations to implement the Act.

SECTION 3. During the transitory period, the Transitory FINL described in Rule XIV, Section 1 hereof shall take effect.

RULE XIV
TRANSITORY FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Description. – The Transitory FINL shall consist of the following:

a.  List A

All investment areas in which foreign ownership is limited by mandate of the Constitution and specific laws.

b.  List B

1.  Manufacture, repair, storage and/or distribution of firearms, ammunition, armored vests and other bullet proof attires, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials required by law to be licensed by and under the continuing regulation of the DND or the PNP, as the case may be.

However, the manufacture or repair of these items may be specifically authorized by the Secretary of National Defense or the Chief of the PNP to non-Philippine nationals, provided a substantial percentage of output, as determined by the said agencies, is exported.

The extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

Compliance with the export requirement shall be monitored by the DND or PNP, as the case may be.

2.  Manufacture and distribution of dangerous drugs; all forms of gambling, sauna and steam bath houses, massage clinics and other like activities regulated by law because of risks they may pose to public health and morals.

3.  Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if: [1] they involve advanced technology as determined by the Department of Science and Technology, or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars [US$100,000.00] shall be allowed to non-Philippine nationals.

SECTION 2. Formulation of the transitory foreign investment negative list. –

a.  NEDA, in consultation with relevant agencies, shall enumerate, as appropriate, the areas of investment covered in this Transitory FINL.

b.  The Transitory FINL shall be published in full at the same time as, or prior to, the publication of these Implementing Rules and Regulations to implement the Act.

RULE XV
OPTIONS FOR EXISTING BOI-REGISTERED ENTERPRISES

SECTION 1. Existing enterprises which have been issued Certificates of Authority to do Business or to Accept Permissible Investments under Book II of E. O. 226, Book II of PD 1789 and R. A. 5455, whose activities are included in the Transitory FINL or in subsequent Negative List, are allowed to continue to undertake the same activities which they have been authorized to do subject to the same terms and conditions stipulated in their certificates of registration.

Those whose activities have been previously authorized under Book II of E. O. 226, Book II of PD 1789 and R. A. 5455, and whose activities are not in the Transitory FINL or in subsequent Negative Lists may opt to be governed by the provisions of the Act.  Said enterprises shall be considered automatically registered with the SEC upon surrender of their certificates of authority to the BOI. The SEC shall issue a new certificate of authority upon advise of the BOI.

SECTION 2. Existing enterprises with more than forty percent [40%] foreign equity which have availed of incentives under any of the investment incentives laws implemented by the BOI may opt to be governed by the Act.  In such cases, said enterprises shall be required to surrender their certificates of registration, which shall be deemed as an express waiver of their privilege to apply for and avail of incentives under the incentives law under which they were previously registered. Subject to BOI rules and regulations, said enterprises may be required to refund all capital equipment incentives availed of.

RULE XVI
CONSISTENT GOVERNMENT ACTION

SECTION 1. No agency, instrumentality or political subdivision of the Government shall take any action in conflict with or which will nullify the provisions of the Act, or any certificate or authority granted hereunder.

RULE XVII
COMPLIANCE WITH ENVIRONMENTAL STANDARDS

SECTION 1. All industrial enterprises, regardless of nationality or ownership, shall comply with existing rules and regulations, and applicable environmental standards set by the Department of Environment and Natural Resources [DENR] to protect and conserve the environment.

The DENR shall provide the SEC with a list of environmentally critical activities/projects and areas. Necessary clearances may be secured after registration with the SEC.

RULE XVIII
ADMINISTRATIVE SANCTIONS

SECTION 1. Foreign investments in export enterprises.  – Non-compliance by any duly-registered export enterprise with Rule VI, Sections 3 and 4 above shall be subject to the following sanctions:

a.  For late submission of the required annual report –

1st violation – written warning
2nd violation – basic fine of P1,000.00 and a daily fine of P50.00
3rd violation – basic fine of P2,000.00 and a daily fine of P100.00
Subsequent violation – basic fine of P5,000.00

b.  For the submission of fraudulent reports –

FINEPARTNERSHIP/CORPORATIONSOLE PROPRIETORSHIP
1st violationP100,000.00P50,000.00
2nd violationP150,000.00P70,000.00
3rd violationFine in an amount not exceeding 1/2 of 1% of total paid-in capital but not more than Five Million PesosP100,000.00
Subsequent violationCancellation of registration granted under the Act

The President and/or official/personnel of the partnership/corporation responsible for the submission of fraudulent reports shall be subject to the following sanctions:

1st violation – a fine of P50,000.00
2nd violation – a fine of P100,000.00
3rd violation – a fine of P200,000.00

c.  For non-submission of the required reports within twelve [12] months after the taxable year, cancellation of the certificate of registration granted under the Act.

d.  For failure of any duly-registered export enterprise to comply, without justifiable reason, with the SEC or BTRCP order to increase its export to at least sixty percent [60%] of total sales:

FINEPARTNERSHIP/CORPORATIONSOLE PROPRIETORSHIP
1st violationP100,000.00P50,000.00
2nd violationP150,000.00P70,000.00
3rd violationFine in an amount not exceeding 1/2 of 1% of total paid-in capital but not more than Five Million PesosP100,000.00
Subsequent violationCancellation of registration granted under the Act

The President and/or official of the partnership/corporation responsible in the failure to comply with the said SEC or BTRCP order shall be subject to the following sanctions:

1st violation – a fine of P50,000.00
2nd violation – a fine of P100,000.00
3rd violation – a fine of P200,000.00

SECTION 2. Compliance with environmental standards. – Any industrial enterprise, regardless of nationality of ownership which fails to comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards shall be subject to the sanctions as may be provided for in the rules and regulations of the DENR.

SECTION 3. Hearing of violations of the Act. – The SEC or BTRCP shall adopt their respective rules and regulations for the purpose of conducting hearings and investigations involving violations of the provisions of the Act and these Implementing Rules and Regulations.

SECTION 4. Other grounds for cancellation – The following are other grounds for the cancellation of the certificate of registration granted under the Act:

a.  Failure of non-Philippine national intending to engage in the same line of business as an existing joint venture, in which he or his majority shareholder is a substantial partner, to disclose such fact and the names and addresses of the partners in the existing joint venture in his application for registration with the SEC; or

b.  Commission of any other fraudulent act.

SECTION 5. Other violations. – Any other violations of the Act and these Implementing Rules and Regulations shall be penalized in accordance with Section 14 of the Act.

RULE XIX
EFFECTIVITY

SECTION 1. These Implementing Rules and Regulations shall take effect fifteen [15] days after publication in a newspaper of general circulation in the Philippines.

Approved by the NEDA Board:   9 July 1996.

Republic Act No. 8179

AN ACT TO FURTHER LIBERALIZE FOREIGN INVESTMENTS, AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 7042, AND FOR OTHER PURPOSES

SECTION 1. Section 3, paragraph (a), of Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991″, is hereby amended to read as follows:

“Section 3. Definitions. – As used in this Act:

[a] the term “Philippine national” shall mean a citizen of the Philippines, or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent [100%] of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines, in order that the corporation shall be considered a Philippine national.”

SEC. 2. Sec. 7 of Republic Act No. 7042 is hereby amended to read as follows:

“Sec. 7. Foreign investments in domestic market enterprises. – Non-Philippine nationals may own up to one hundred percent [100%] of domestic market enterprises unless foreign ownership therein is prohibited or limited by the Constitution and existing laws or the Foreign Investment Negative List under Section 8 hereof.”

SEC. 3. Section 8 of the Foreign Investments Act of 1991 is hereby amended to read as follows:

“Sec. 8. List of investment areas reserved to Philippine nationals [Foreign Investment Negative List]. – The Foreign Investment Negative List shall have two [2] component lists: A and B:

[a] List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws.

[b] List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the Department of National Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine national by the Secretary of National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics.

“Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if [1] they involve advance technology as determined by the Department of Science and Technology, or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals.

“Amendments to List B may be made upon recommendation of the Secretary of National Defense, or the Secretary of Health, or the Secretary of Education, Culture and Sports, endorsed by the NEDA, or upon recommendation motu proprio, of NEDA, approved by the President, and promulgated by a Presidential Proclamation.
“The transitory Foreign Investment Negative List established in Section 15 hereof shall be replaced at the end of the transitory period by the First Regular Negative Lists to be formulated and recommended by NEDA following the process and criteria provided in Sections 8 and 9 of this Act. The First Regular Negative List shall be published not later than sixty [60] days before the end of the transitory period. Subsequent Foreign Investment Negative List shall become effective fifteen [15] days after publication in a newspaper of general circulation in the Philippines: Provided, however, That each Foreign Investment Negative List shall be prospective in operation and shall in no way affect foreign investments existing on the date of its publication.

“Amendments to List B after promulgation and publication of the First Regular Foreign Investment Negative List at the end of the transitory period shall not be made more often than once very two [2] years.”

SEC. 4. Section 9 of the Foreign Investments Act of 1991 is hereby amended to read as follows:

“SEC. 9. Investment rights of former natural-born Filipinos. – For purposes of this Act, former natural-born citizens of the Philippines shall have the same investment rights of Philippine citizens in Cooperatives under Republic Act No. 6938, Rural Banks under Republic Act No. 7353, Thrift Banks and Private Development Banks under Republic Act No. 7906, and Financing Companies under Republic Act No. 5980. These rights shall not extend to activities reserved by the Constitution including [1] the exercise of profession; [2] in defense-related activities under Section 8 (b) hereof, unless specifically authorized by the Secretary of National Defense; and [3] activities covered by Republic Act No. 1180 [Retail Trade Act], Republic Act No. 5487 [Security Agency Act], Republic Act No. 7076 [Small Scale Mining Act], Republic Act No. 3018, as amended [Rice and Corn Industry Act], and P.D. 449 [Cockpits Operation and Management]“.

SEC. 5. The Foreign Investments Act is further amended by inserting a new section designated as Section 10 to read as follows:

“SEC. 10. Other rights of natural-born citizen pursuant to the provisions of Article XII, Section 8 of the Constitution. – Any natural-born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine Laws may be a transferee of a private land up to a maximum area of five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land to be used by him for business or other purposes. In the case of married couples, one of them may avail of the privilege herein granted: Provided, That If both shall avail of the same, the total area acquired shall not exceed the maximum herein fixed.

“In case the transferee already owns urban or rural land for business or other purposes, he shall be entitled to be a transferee of additional urban or rural land for business or other purposes which when added to those already owned by him shall not exceed the maximum areas herein authorized.

“A transferee under this Act may acquire not more than two [2] lots which should be situated in different municipalities or cities anywhere in the Philippines: Provided, That the total land area thereof shall not exceed five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified form acquiring rural land and vice versa.”

SEC. 6. The National Economic and Development Authority, in consultation with the Board of Investments, the Department of Trade and Industry and Securities and Exchange Commission, shall prepare and issue the necessary primer and other information campaign materials regarding the Foreign Investments Act and the amendments introduced thereto, with copies of said materials furnished all the Philippine embassies, consulates and other diplomatic offices abroad and disseminated to Filipino nationals, former natural-born Filipino citizens, and foreign investors, within sixty [60] days after the effectivity hereof.

SEC. 7. The NEDA is hereby directed to make the necessary amendments to the implementing rules and regulations of Republic Act No. 7042 in order to reflect the changes embodied in the Act.

SEC. 8. Sections 9 and 10 of Republic Act No. 7042 and all references thereto in said law are hereby repealed or modified accordingly. All other laws, rules and regulation and/or parts thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly.

SEC. 9. If any part or section of this Act is declared unconstitutional for any reason whatsoever, such declaration shall not in any way affect the other parts or sections of this Act.

SEC. 10. This Act shall take effect fifteen [15] days after publication in two [2] newspapers of general circulation in the Philippines.
Approved: March 28, 1996
_____________
Republic Act No. 7042 was amended by Republic Act No. 8179 which was approved on March 28, 1996. The date of effectivity thereof was on April 15, 1996.

SECTION 1. Section 3, paragraph (a), of Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991″, is hereby amended to read as follows: