Mr. Joseph M. Baduel

November 4, 1981 Mr. Joseph M. Baduel c/o CMC Building 76 Colon Street, Cebu City Dear Mr. Baduel: This refers to your letter dated October 19, 1981 requesting opinion on the query posed therein. It appears from your letter that your client, who is presently engaged in the lending business by way of granting loan to borrowers to be paid on installments, wishes to incorporate his lending business with the following primary purpose: "To engage in the business of lending investor , lending money to persons and entities under terms and conditions allowed by law." (emphasis supplied) and the following secondary purpose: "To act as management, financial and marketing and technical consultants and to render assistance and advice and otherwise help and assist other persons, firms, associations or entities whether public, private, government or quasi-government and for this purpose to make and undertake researches, feasibility studies, forecasts, plans and designs." Said proposed corporation will raise its capital requirements from its own sources and the loans extended will be straight and direct loans to its borrowers payable in installments. It will not discount or factor the promissory notes that the borrower will execute in favor of the corporation. You wish to inquire (a) whether or not such a corporation with the aforementioned purpose may be validly organized, (b) what are the requirements for such incorporation, and (c) whether or not the approval of the Department of Financial Intermediaries of the Central Bank of the Philippines is necessary. Please be informed that the phrase "lending investor" has a specific meaning in taxation, and defined in Section 187 (u) * of the National Internal Revenue Code of 1977 to include "all persons who made a practice of lending money for themselves or others at interest." Furthermore, although the Financing Company Act of 1969, (R. A. No. 5980) did not include the term "lending investor", nevertheless, its implementing rules and regulations included "direct loan" as a financing activity. As a matter of policy, then, the SEC requires every corporation or partnership engaged in the business of extending direct loans to organize into a financing company under the provision of R. A. No. 5980 . Recently, Presidential Decree Nos. 1738 and 1739 (both issued on October 27, 1980) expressly included the act of granting direct loans or a "lending investor" as one of the purposes of a finance company, to wit: cdll The term "finance companies" refers to corporations or partnerships other than a bank, or insurance company, primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises whether by granting direct loan or by discounting or factoring commercial papers or accounts receivables for profit, buying and selling contracts, leases, chattel mortgages and other evidences of indebtedness arising out of one or more of the steps in the distribution and sales of commodities. (emphasis ours) In short, P. D. Nos. 1738 and 1739 have re-defined the term "finance company" in the sense that it includes corporations or partnerships primarily engaged in granting direct loans, inter alia. In view of the foregoing, we believe that the intent of the latest law is to cover the granting of a direct loan as a financing activity, and therefore it may only be engaged in by a financing company within the purview of R. A. No. 5980. Attached is a list of the requirements for the registration of a financing company. Please note that the minimum paid-up capitalization of such financing company is P500,000.00. Finally, it has to secure the approval of the Central Bank of the Philippines. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .