Business for foreigners

Consult a good Lawyer how it can be set up without losing control.

Hi Sir ansmn1974.

Before setting up a business here in the Philippines, make sure that your Filipino partner is someone that you can trust and not only because you are in a rush in pushing the business registration of the company. If you want to be sure, have a consultation with lawyers from consulting firms who specialize in this type of service.

Regards,
Maro

ansmn1974 wrote:

Hi, I am asking about business for foreigners in Manila. i came across sites that all agree that foreigners are not allowed to own more than 40% of any business. This is Ok for me but is it safe that my partner owns 60%?
In other words, what does this mean if a partner owns 60% in the Philippines in terms of power and decisions in any company ?
Thank you

It means simply that they own 60% and if you argue with them you lose.....

They can have the final decision, and terminate the business if they so desire, taking with them their 60% share.

Hi, Thank you for the reply.
No one starts a business by ONLY trust. as a matter of fact i do not trust anyone and my question was about what power the law gives to the person who holds on papers 60%.
Thank you

So to be sure you need to protect yourself with the worst case scenario that could happen to you. I know trust should not only be the foundation but trust plays a huge role in a business partnership. I work for a consulting firm owned by a Filipino lawyer and an American businessman.

there are ways of protecting yourself ie: registering a mortgage for the full amount of the business value and calling said loan if or when your partner starts to get larcenistic
as the late great Rockefeller said: own nothing, control everything...

@ ansmn1974,
You first must start out by selecting the type of ownership you seek; Partnerships, LLC or Corporation. You must also understand if you intend to have a foreign or Philippine business. 

Assuming you are interested in a Philippine Corporation vs. a Philippine Partnership, a more direct set of answers lie in the Philippine Corporate formulation and wording of:

1.  The type of stock issued,
2.  The Articles of Incorporation,
3.  The By Laws, and
4.  The Negative A & B listing and your corporate business structure within those limits.
5.  Stakeholder loans and their place in equity share percentages, par values of shares and or corporate dissolutions.
6.  Corporate board membership percentages and held by whom?

The Negative A & B lists should be where you spend your initial deep reviews as this is where your selection process will determine how much investment is required to start.  Control of the corporate assets and income is important for sure. but if you lack the capital to do the best type of legal entity, your ROI may never be realized.

Additionally, you will need to make sure all wording will be approved by the SEC in Manila.

There are no simple or fast answers to your question and one needs to be very careful with some recommended alternative solutions.

Hi Sir Ansmn1974. Yes a foreigner could own a property here in the Philippines but with limitations. Although foreigners cannot own land in the Philippines, they can still purchase units in condominium buildings, so long as foreign ownership in a single project will not exceed 40 percent. If married to a Filipino, the foreigner can buy land provided the title will be in his or her spouse's name.

The only property an expat can buy is a condo or high-rise apartment. Condos or condominiums are apartment blocks that are governed by rules, that as a community living there, everyone must abide by. Condominiums are increasingly common in all cities of the Philippines. A foreigner can buy a condo unit, but 60% of the total units in the building must be owned by Filipinos.

By the way, I'm Nika Tijing of Century Properties Inc. - International Marketing Consultant. I'm willing to assist and help you on deciding and making this venture possible.

Looking forward from your feedback.

Thank you

Hello all

For info, several posts have been removed from this thread responding to a spammer who was sharing her website links here and on several other forums as well.

Best Regards
Kenjee
Expat.com

This is my tips for you, Get at least 2 business partner. 30% 30% and 40%. This will guarantee that you will have all the decision in the company.

A friend of mine owned a call center. His business partner has the 60%. He make all the decision and hired people in the operation. His started with 30 staff now he has 300 agents. His regrets, not owning the company 100%. His Filipina wife comes late.

By the way my friend local partner did nothing for the business. His partner is just waiting for the quarterly profits.

it is best to have a corporation registered than a partnership, because you can have additional people as partners, you can own the the 40% and the 60% can be distributed to other 4 members,
there are still a lot of things to consider just like what my employers in the past did. you may email me **

I'm in same situation. Is it possible to have more partners so you can be the majority owner!  Or do equal shares to make everyone happy.

MissionHopeCebu wrote:

I'm in same situation. Is it possible to have more partners so you can be the majority owner!  Or do equal shares to make everyone happy.

You could, for example, have 60 Filipino partners each with 1%, and you have 40%.

It appears that the majority (60%+) has to be in Philippine hands.

you can set up a corporation and choose other 4 people to be directors, you own the 40% share and the 60% can be divided into 4, so there will be a total of 5 people in the corporation., therefore, you will still be the controlling party

This topic remains very complex.  My post may be a bit wordy but my intention is to provide accurate information.

First, I would not suggest any expat attempt a corporation without getting a very good understanding of corporate structures in the Philippines.  American expats may have a slight advantage here if their backgrounds include US corporation development activities since the Philippine corporate codes are a hybrid of the US codes.  Nonetheless, the Articles of Incorporation and By-Laws are where potential expat incorporators must carefully place and structure how the corporation will be controlled and to a degree by whom.  Clearly, getting 60 locals at 1% each is not a legal corporate structure and it would ever be approved by the SEC.

Example:  Section 14. Contents of the articles of incorporation. (number 6 & 7) states:

"6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);

7. The names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code;"

A Philippine corporation can never have more than 6 foreigner incorporators assuming the total potential incorporators are 15.  Those foreigners must share a collective share of no more than 40% in order to be a legal Phil corporation in nearly all cases (see Negative A & B lists).

Second, when there are concerns/talks about business and property control, the potential expat incorporator(s) must pay close attention to and understand how to structure certain elements of the corporation to legally deal with:

"TITLE III - BOARD OF DIRECTORS/TRUSTEES AND OFFICERS"…

Section 23 states:

"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. (28a)"

Although I have sat in front of an SEC atty in Manila and reviewed the package to be submitted with her, this is still a process with grey areas and a few intentional subjective interpretation "got you" areas unless the documents are prepared with great clarity in those key areas.  A Phil corp with foreign members will get greater SEC review prior to approval….. believe that. 

Third, no matter any of my opinions stated here, the Philippine corporate code also states:

"In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code."

Hi,
You can control the partner to some degree by having a Power of Attorney, and importantly seeting up the business bank account so that you are the only signatory......
But off course there will always be some risk to this structure, so wise to choose the Filipino partner carefully also...I think better to use a poor uneducated than say a lawyer.
Just my opinion from my 6 years experience here in the Philippines.
Cheers,
Matt

My experience when I set up 2 companies 6 years ago was my lawyer told me it had to be 40% me, 57%, 1%, 1%, 1% partners.....So at that time it was not possible to do 40%, 30%, 30%......as I asked and lawyers and they said no.
But you can check if the rules have changed.
Also the government has allowed certain industries and bigger companies to be 100% foreign owned..search in google.

Hello, everyone.

For a foreigner who are intending to do business in the Philippines, what you need to understand is the business to which you are intending to be engaged in. The extent of your financial exposure in the business depends on the nature of business. For this, you need to check on the constitutional provision on limitations as exemplified by the Negatives lists of the Foreign Investment Act.  An example of such limitations is the practice of profession which is limited to Filipino citizens (though this is not to say that a practice of profession is a business) or retail business is limited to Filipinos.  This is not to say that there limitations are absolute. Certain laws provides for exceptions.  Foreigners can get more ownership of the business, even a 100% in Export-oriented businesses,generally, like those located in export processing zones or those business process outsourcing (BPOs).

The complexity lies when the principal business points to an activity which, for some policy of protectionism (which may be said to be outdated if you are to be talking about globalization), are reserved for Filipinos or Filipino domestic corporations. A perfect example will be those intending to engage in the restricted/limited businesses and those small and medium enterprises.

By the way, you need to think over what business vehicle you are to pursue: single proprietorship, partnership and corporation.  Among the three, I will not recommend partnership if your goal is permanence.  Single proprietorship may be practical but this is not possible for those businesses in the negative lists, though there are some ways to go about it just like when you intend to do business via a corporate structure where an alien's business interest are limited to 40 of the authorized  capital stock.

The legal way to go about it is to get at least two legitimate business people or investors who will each have a 30% interest in the corporation. It can be more so long as you are the majority stock holder at 40% shareholdings.  But this is not to say that all your desires and plans for the business will be followed.  A corporation acts only through the Board of Directors (BD).  Each of the investors will be allowed to nominate a representative in the BD proportionate to his shareholdings.  if the investors holding 60% agreed on a corporate decision which is contrary to yours, majority rules.  This is the controlling factor: majority. 

There are ways to improve your position like entering into an assignment of voting rights and/or rights to receive dividends; a real estate mortgage with other investors; an assignment of shares to a domestic corporations which you also is the majority stock holder; or set up a management corporation who will manage the business.  But it must be understood that these set-ups entail a private agreement.  Hence, the risk of not being complied with fully by the parties is ever present.  It is difficult to go about these in details as it may crosses the boundary of professional ethics. 

I hope you this helps.


Cheers!

no matter what way you split the 60% it is still against you. You only have control if at least 1 agrees! If both disagree you lose!

Assuming a Philippine corp requires minimum of 5 humans of which no more than 2 of the 5 can be foreign, one must look at selected controls, steps & factors seldom discussed/understood/implemented here in the PI.

This topic requires detailed preparation to fully implement and is 100% legal ….just a few examples include:

1.  What do the BL and AOI say about "technology transfer arrangements" (TOT) with the 40% foreigner(s)? This causes a focus on "contracts or agreements involving the following: transfer of systematic knowledge for the manufacture of a product or the application of a process; rendering of a service, including management contracts; and the transfer, assignment, or licensing of all forms of intellectual property rights, including licensing of computer software,..".

For us American expats, this can clear up any issues that otherwise would come under the various "Technology Transfer Acts".. including but not limited to:
- Bayh-Dole Act of 1980 - Codified in 35 U.S.C. § 200-212
- Stevenson-Wydler Technology Innovation Act of 1980
- Federal Technology Transfer Act of 1986 (FTTA)
- The National Competitiveness Technology Transfer Act of 1989
- WIPO

Of course the new corp must have the corporation file the "Application for Alien Employment Permit" with the Department of Labor and Employment (DOLE).

2. What do the BL and AOI say about "expat officer/corp member" receiving all compensation in the foreigner(s) home country currency?

If an expat is looking for a fast solution or shortcut, local "professionals" will be eager to take the expat's money in legal fees and corporate "set up" fees that never address or allow for the 40% foreigner to have true control.  Otherwise people need to study and find the legal solutions that = proper control within the philippine corporation.

A lot of high tech mumbo jumbo here. As most of us are old age retirees with one foot in the grave, I think we would like to see more info relevant to starting a mom and pop business to keep the spouse in gravy after we are the dearly departed.

Before the poo hit the fan, me and my spouse tried pigs and chickens. Pigs are a waste of time these days unless you can slaughter and market you're own meat. Eggs seems to be the way to go, but the supply of day old chicks always an issue. So if any of you high rollers can come in and set up for day old chick breeding, I am sure you'd do well. Ready to lay chickens, much the same scenario. Big delays and expensive to buy.

Some expats may like the option of "I'm blind in one eye and can't see out of the other" excuse or just call all information beyond 5 seconds of thinking "mumbo jumbo" or "high tech"…….   

For any expat that is high tech adverse, I suggest that person turn in their cell phones, dump their ATM, do not get a car newer than 1975 (year of computer controls and OBD1) and stay away from email or blogs. 

This blog allows us retirees to take information or leave it … there is no need to comment negative about correct information (that one may feel is "mumbo jumbo") as it may be helpful to many others…even to those that seem ready to stop thinking and learning past 1+1, as they keep one foot in the grave!

I agree to think about how to leave loved ones set up and I am sure not many expats would want to leave their Fil family with BIR, Brgy and SSS issues because they were to adverse to learning what it takes in 2016 on to protect the family.

Hi Ansmn1974,

I own an export company, 99% and i'm a foreigner.  1% owned my my lawyer and his team. 

(1) decide on the business entity you want to open and then visit the dti website and see what are the ownership requirements / config.

(2) if you want to setup a company which requires 60% or more assigned to natural born Filipinos, then consider using your accountant and lawyer to hold the 60%, but have them sign a special power of attorney which grants you full voting and control over their share, it's dividends and etc.  you can then have all parties sign an MOU / MOA among yourselves if that is even necessary.

(3) There are small portfolios or business models which some companies start in your favour and give you full rights to the earning of.

This is my 2 cents which is rather basic.  I travel around the philippines extensively, so if you're interested to meet for a drink or coffee sometimes, you can PM me.

Regards
Sanjay

ansmn1974 wrote:

Hi, I am asking about business for foreigners in Manila. i came across sites that all agree that foreigners are not allowed to own more than 40% of any business. This is Ok for me but is it safe that my partner owns 60%?
In other words, what does this mean if a partner owns 60% in the Philippines in terms of power and decisions in any company ?
Thank you

hmmm....I have an opportunity to purchase a smallish ladies boutique in one of the malls here in Makati...

So...I am presuming a partnership between my Filipina partner and I would be the most simple way to conduct this...

Many have posted about the risks with a legal 60/40 partnership.  I am sure you can read many posted comments regarding relationships and trust issues, so no need to do that here.

A wise potential business partner MUST review how or if any other partnership was started and if this business at any time came under Republic Act No. 7718, which amended R.A 6957, dealing with private sector infrastructure or development projects.

If the current business has any history (check BIR) prior to your arrival, you may want to completely understand the following:

build-own-and-operate (BOO);
build-lease-and-transfer (BLT);
build-transfer-and-operate (BTO);
contract-add-and-operate (CAO);
develop-operate-and-transfer (DOT);
rehabilitate-own-and-transfer (ROT; and
rehabilitate-own-and-operate (ROO).

If the above does not apply to your situation, proceed carefully as a "Foreign Investor" with 100% proper following/processing of the related documents for a legal partnership as a foreigner.  Your failure to do this will result in 100% liability with zero legal recovery, if the partnership goes south.

There are about 20 steps to do this right (along with understanding select wording to use) and to be in compliance with RA 1180 (as amended by RA 8762 – Retail trade rationalization of 2000).  Some requirements will change on a case-by-case basis and are always subject to PRC, DTI and other agencies review/approval.  Others may tell you it is simple or easy… my response is based on the law in the PI as it relates to "foreign owners/partners" and not "easy short cuts"… 

Once approved,  your Certificate of Business Name Registration (as a partnership) is valid for 5 years and will only be valid "at the business address indicated thereon."  Best wishes…...