Chemphil Industries of the Philippines, Inc.

November 28, 1990 Chemphil Industries of the Philippines, Inc. Chemphil Bldg.,851 Pasay Road Legaspi Vill.,Makati Metro Manila Attention : Atty . Rolando P . Navarro VP-Corporate & Legal Affairs Gentlemen : This refers to your letter dated October 24, 1990 inquiring on the legality of the move of Chemphil Industries of the Philippines, Inc. (CIP) to centralize the accounting and personnel functions of its subsidiaries and affiliates in the parent company in order to ensure maximum effectiveness and efficiency in meeting its corporate goals. A perusal of the articles of incorporation of CIP disclosed that the corporation is a holding company. The term "holding company" is equivalent to a parent corporation, having such an interest in another corporation, or power of control, that it may elect its directors and influence its management .A parent or holding company is one which controls another as a subsidiary or affiliate by the power to elect its management. Affiliates are those concerns which are subject to common control and operated as part of a system .(Ballantine on Corporation Sec. 134) A contract between parent and subsidiary corporations, even with identical officers, is not void, but only voidable for fraud or unfairness (6 A Fletcher Sec. 2822).Absent a finding of fraud or bad faith, a corporation is entitled to a presumption of separateness from its sister corporation despite common ownership and control. Common officers and management are not incompatible with separate entities or conclusive identity. Even active management for a proper object does not always indicate identical entities, (1 Fletcher Sec. 43.20).Thus, contracts entered into by a parent corporation with a subsidiary or affiliate may be held legal where the purpose is to provide more efficient operation and greater convenience to both. In the light of the foregoing, subject corporation, being a holding company may, in some cases, intervene in the management and affairs of its subsidiaries or affiliates, such as the centralization of accounting and personnel functions, provided the management in those affairs will not affect the separate and continuing existence of the managed subsidiary or affiliate corporations. However, since this situation may in effect place the subsidiaries or affiliates to a certain extent within the control of the parent company, and the latter in turn assumes responsibility for such management, the same shall be subject to the provisions of the Corporation Code relative to execution of management contracts, particularly Section 44 thereof. Please be advised accordingly. (SGD.) RODOLFO L. SAMARISTA Associate Commissioner