Re: License to Transact Business in the Philippines; Philippine Branch

May 30, 2022 SEC-OGC OPINION NO. 22-08 RE: LICENSE TO TRANSACT BUSINESS IN THE PHILIPPINES; PHILIPPINE BRANCH Gammad Law Office 3B Basic Petroleum Bldg., 104 C. Palanca St., Legaspi Village, Makati City [emailprotected] Attention: Atty. Joel C. Gammad Dear Atty. Gammad : This refers to your letter sent through electronic mail on 03 March 2021 requesting for opinion from the Commission on the following: 1. Is the Branch Office of KOBELCO Construction Machinery Southeast Asia Co. Ltd. (KOBELCO) which is authorized under its present license to "operate the business of wholesaling of hydraulic excavator, crane and its attachment, parts including components of said products," allowed to engage in "after-sales support services" and coordination with local dealers for sales and marketing? 2. If such "after-sales support services" is deemed not covered under KOBELCO's present license, in order to engage in such business activity, does KOBELCO have to file a Petition for Amendment of License? 3. In submitting the documents for amendment of KOBELCO's purpose, which document must be submitted to reflect the said change in purpose: SEC Form No. F-013 with revisions on the declared purpose or an Articles of Incorporation reflecting the intended amendment on the purpose? As background, you mentioned in your letter that on 20 December 2017, the Commission granted KOBELCO Construction Machinery Southeast Asia Co. Ltd. Philippine Branch (KOBELCO-PH) a license to transact business in the Philippines under the following purpose: "to operate the business of wholesaling of hydraulic excavator, crane and its attachment, parts including components of said products. " Section 141 of Republic Act No. 11232 or the Revised Corporation Code of the Philippines (RCC) provides: " Section 141. Application to Existing Foreign Corporations. Every foreign corporation which, on the date of the effectivity of this Code, is authorized to do business in the Philippines under a license issued to it shall continue to have such authority under the terms and conditions of its license, subject to the provisions of this Code and other special laws. " Meanwhile, Section 143 1 of the RCC provides that the license to transact business in the Philippines issued by the Commission to a foreign corporation subsists as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation ( e.g. , in this case, Thailand), unless such license is sooner surrendered, revoked, suspended or annulled. In the event the foreign corporation desires to pursue in the Philippines other or additional purposes, an amended license to operate is required under Section 148 of the RCC, to wit: " Section 148. Amended License. A foreign corporation authorized to transact business in the Philippines shall obtain an amended license in the event it changes its corporate name, or desires to pursue other or additional purposes in the Philippines , by submitting an application with the Commission, favorably endorsed by the appropriate government agency in the proper cases." In the case at hand, to determine whether or not the after-sales support services 2 are covered by the KOBELCO-PH's license to transact business in the Philippines, we refer to the specific purpose or purposes which the corporation intends to pursue, 3 as stated in its application for such license that was submitted to the Commission. As stated in KOBELCO-PH's application to establish a branch in the Philippines, the purpose which it intends to pursue is "to operate the business of wholesaling of hydraulic excavator, crane and its attachment, parts including components of said products." This purpose clause is reflected in KOBELCO-PH's license. In this connection, it is well-settled that a corporation has only such powers as are expressly granted in its charter or in the statutes under which it is created or such powers as are necessary for the purpose of carrying out its express power. 4 It is the corporation's purpose clause that confers, as well as limits, the powers that a corporation may exercise. Express powers include the general powers which are enumerated in Section 35 of the RCC and those which are sanctioned by the State in the corporation's Articles of Incorporation. Implied or incidental powers , on the other hand, are those which are "essential or necessary to carry-out its purpose or purposes as stated in the Articles Incorporation." 5 The power to "exercise such other powers as may be essential or necessary to carry out its purpose or purposes stated in the articles of incorporation" is an implied power of a corporation as recognized under paragraph (k) 6 of Section 35 of the RCC. Clearly, the implied powers of a corporation pertain only to such powers as are reasonably necessary to enable a corporation to carry out the express powers granted. The Commission has previously opined, 7 to wit: "It is settled that it is only in the business/es, for which it was lawfully organized and which is stated in the articles of incorporation, that a corporation should engage in. But if the business is necessary for the accomplishment of the purpose of the corporation or incident to it, the corporation may also engage in such business (2 Oben and Oben, Comments on the Commercial Law of the Philippines, p. 54)." As a matter of fact, it is even legal to "stretch" the meaning of the purpose clause to cover new and unexpected situations. There will always be instances when doubts may arise as to whether an act may be reasonably implied from the purposes of the corporation. These doubts will sometime be due to poor draftsmanship or lack of foresight on the part of the original incorporators or their legal counsel or, as is oftentimes the case, situations or circumstances may come up which could not have been foreseen at the time of the incorporation. Many times the purpose clause can be reasonably 'stretched' as to impliedly cover these new and unexpected situations. But in those cases where it cannot, a proper amendment thereof would be necessary. 8 The doctrine was applied in SEC-OGC Opinion No. 12-07 , 9 which interpreted the license of a foreign corporation doing business here, to wit: xxx xxx xxx "In determining whether or not the proposed Services are covered by the CARE Philippines' license to operate, we apply the following rules and principles: The rules governing the construction of charters of corporations are, for the most part, the same as those which govern the construction and interpretation of statutes, contracts and other written instruments (7A Fletcher, Sec. 3640). In the determination of what business may be carried on by a corporation, reference must be had to its charter, and unless the power to carry on a particular business is either expressly or impliedly conferred thereby, it does not exist. ( Chiwacla Line v. Disnukes , 87 Ala. 344, 650, 122, 5 LRA 100, cited in Am. Jur. Sec. 743) Based on the foregoing, it appears that the proposed Services are covered by the scope and coverage of CARE Philippines' license, since financial monitoring support is broad enough to encompass the enumerated activities. Moreover, the proposed Services are necessary to and implied from the nature of the activity the organization is engaged in i.e. , it provides technical and financial assistance through grants, to other CARE missions and local developmental partners. Hence, these services are necessary for CARE to implement its grants management and global finance system for it to operate. Hence, there is no need to amend its license to accommodate the proposed Services." xxx xxx xxx In this relation, Clause 14 of the Annex to the Affidavit 10 attached to your letter states that one of the objectives of KOBELCO, as the head office, is "to operate the business of inland wholesaling of spare parts of Hydraulic Excavator and Attachment of Hydraulic Excavator including components of said products, and wholesale by export of Hydraulic Excavator and Attachment of Hydraulic Excavator including components and spare parts of said products. " Such activity is also performed by its branches as stated under Clause 11 of the same which speaks of the establishment of a branch office or the appointment of an agency abroad. Applying the above principles to the given case, it appears that the proposed after-sales support services are covered by KOBELCO-PH's license as the selling of components and spare parts is part of the services offered to the customers after a sale of a machinery is made. Moreover, after-sales support services are necessary to and implied from the nature of the activity that KOBELCO-PH is engaged in i.e. , wholesale of hydraulic excavator, crane and its attachment, parts. These services are necessary for KOBELCO-PH to cater to the maintenance of the machineries, and respective queries or complaints , if any, of its customers in the Philippines ( i.e. , those who purchased the products sold by KOBELCO-PH). Similarly, since KOBELCO-PH is engaged in the wholesale of machineries, as abovementioned, coordination with local dealers for sales and marketing of its products is also implied for it to be able to sell its products to the public. However, it must be emphasized that, based on its license to transact business, the after sales services to be undertaken by KOBELCO-PH should be strictly limited to its customers, and should not be pursued as a separate business activity ( e.g. , after sales services for all similar machineries even if not purchased from KOBELCO-PH). Similarly, coordination regarding sales and marketing shall also be limited to its own local dealers. From the foregoing, amendment of KOBELCO-PH's license is not necessary for it to engage in the after-sales support and coordination with its local dealers, as described in the immediately preceding paragraph. It shall be understood that the foregoing opinion is rendered solely on the basis of the facts, circumstances and documents disclosed/submitted, and should be considered relevant solely to the particular issue raised therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances. 11 If upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void. (SGD.) ROMUALD C. PADILLA General Counsel Footnotes 1. Republic Act No. 11232, Revised Corporation Code of the Philippines, February 20, 2019. " Section 143. Issuance of a License. If the Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to transact business in the Philippines to the applicant for the purpose or purposes specified in such license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or State of its incorporation, unless such license is sooner surrendered, revoked, suspended, or annulled in accordance with this Code or other special laws . x x x" 2. After-sales support services , in its general sense, is the service provided to customers after a sale has been made ( https://www.merriam-webster.com/dictionary/after-sales ). 3. Ibid. Footnote no. 1, " Section 142. Application for a License . A foreign corporation applying for a license to transact business in the Philippines shall submit to the Commission a copy of its articles of incorporation and bylaws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary. The application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth the following: x x x (e) The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided, that said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency ; x x x" 4. SEC-OGC Opinion No. 33-11, Primary Purpose; Secondary Purpose, July 29, 2011. 5. Insurance Commission Legal Opinion L.O. No. 2017-07, September 15, 2017. 6. Section 35 of the RCC. (k) 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. 7. SEC-OGC Opinion No. 19-39, Online Retail; Secondary Purpose, September 18, 2019. 8. Ibid. 9. SEC-OGC Opinion No. 12-07, addressed to Manabat Delgado Amper & Co. re: Foreign Corporation; Scope of License, May 3, 2012. 10. Memorandum of Association (Equivalent of the Certificate of Registration and Articles of Incorporation). 11. SEC Memorandum Circular 2003-15, No. 7.