Puruganan Chato Tan & Geronimo

November 29, 1995 Puruganan Chato Tan & Geronimo 8th Flr.,Strata 200 Building, Ortigas Center, Pasig, Metro Manila S i r : This refers to your letter dated November 15, 1995 inquiring on whether or not East Asia (AEA) Capital Corporation, an existing " investment house ",can amend its primary purpose to include the business of a " holding company ". A perusal of P.D. No. 129, as amended, otherwise known as the Investment Houses Law, fails to show any provision restricting an investment house to solely and exclusively engage in such activity. By implication therefore, it may be allowed to undertake other unrelated business. Likewise, the Corporation Code allows corporations to provide in their articles of incorporators a variety of different purposes. However, it has to be pointed out that while PD 129, as amended, and the Corporation Code do not prohibit investment houses from engaging in other lines of business activities, the latter law requires that there must be only one "primary purpose" ,and the other purposes not allied or incidental thereto should be classified as "secondary purposes" . The Corporation Code provides, thus: "SECTION 14. Contents of articles of incorporation . .... 2. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is the secondary purpose or purposes ...."(Emphasis supplied) It is necessary to specify the primary purpose and secondary purpose(s) in order to determine which investments of corporate funds would require the authority of both the board and stockholders as required under Section 42 of the Corporation Code. Accordingly, an existing investment house may be allowed to engage in the business of a holding corporation, subject, however, to the following conditions : 1. That the holding company business shall be placed under the secondary purpose, the same not being allied or incidental to the business of an investment house. An " Investment House " is defined as one which engages in the underwriting of securities of other corporations. (PD 129, as amended); whereas, a " Holding Company " is meant one which controls another as a subsidiary or affiliate by the power to elect its management. In other words, a holding company is a parent company which holds stock in other companies for purposes of control rather than for mere investment .(SEC Opinion dated September 30, 1986 addressed to Director Armando L. Suratos) prcd 2. That the corporation shall keep the holding company business distinct and separate from its primary business as an investment house; and provided further, that it shall not act as a "holding or parent company" in corporations of which it is the " underwriter " of their shares of stock, as to do otherwise would defeat the very purpose of an investment house which is to underwrite securities of client corporation; and consequently, the corporations must keep separate books of accounts for each business. 3. That the company must secure favorable recommendation from Bangko Sentral the same being engaged in quasi-banking functions . Section 17 of the Corporation Code is explicit that: "No articles of incorporation or amendments to articles of incorporation of banks, banking and quasi-banking institutions ,building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendments is in accordance with law." cdlex Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner