Mr. Augusto Panlilio

August 29, 1985 Mr. Augusto Panlilio 7 Lachica Bldg.,Marlim Avenue Diamond Subdivision, Balibago Angeles City Sir : This refers to your letter, dated July 19, 1985, requesting the opinion of this Commission on the query posed therein. cdlex It appears therein that you have a Filipino client whose business is organized as a single proprietorship, and is engaged in photography, film developing and processing, and sale of negative films, cameras and other photo accessories. Now your client wants to expand his operation because of an offer of a foreigner to invest in his business. Your query as presented is: Can you incorporate your business under the Corporation Code with 30% foreign equity in the light of the Retail Trade Nationalization Law? Anent thereto, please be advised that the pertinent law of Republic Act 1180, otherwise known as the Retail Trade Nationalization law, was passed by the defunct congress to nationalize the retail trade by vesting into the hands of Filipino citizens or to associations, partnerships or corporations wholly owned by Filipino citizens the retail business. Section 1 thereof explicitly provides as follows: "SECTION 1. No person who is not a citizen of the Philippines, and no association, partnership, or corporation the capital of which is not wholly owned by citizens of the Philippines, shall engage directly or indirectly in the retail business ...." The law therefore clearly provides that corporations whose capital are not owned by citizens of the Philippines are barred from engaging "directly or indirectly" in retail business. The use of the words "directly or indirectly" is indeed of paramount importance, for it underscores the policy of the State to exclude corporations not wholly owned by Filipinos from engaging in retail business under any scheme, form or devise. ( SEC Opinion, dated July 21, 1977 ) It is therefore clear that the 30% foreign equity infusion in the capital of the proposed corporation, engaged among others in retail business would be an indirect means of engaging in retail business because through such shares, the stockholders participate in the profits and losses of the corporation. Such an indirect means is the one referred to in the prohibitory clause of said act. As used in RA 1180, as amended by P.D. No. 714, "Retail business shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption, but shall not include: a) a manufacturer, processor, laborer or worker selling to the general public the products manufactured, processed, or produced by him if his capital does not exceed five thousand pesos. b) a farmer or agriculturist selling the product of his farm. c) a manufacturer or processor selling to the industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture goods which are in turn sold to them. d) a hotel-owner or keeper operating a restaurant, irrespective of the amount of capital, provided that the restaurant is necessarily included in or incidental to the hotel business." (Section 1, PD 714) In view of the foregoing, our answer to your query is in the negative unless you fall under any of the exceptions provided for in Section 1, PD 714 as above quoted. prcd Very truly yours, (SGD.) MANUEL G. ABELLO Chairman