Yap & Associates

September 21, 1987 Yap & Associates Suite 309 Capt. Gonzaga Building 4114 Rizal Avenue, Manila Gentlemen : This relates to your letter, dated September 14, 1987, requesting the opinion of this Commission on the queries posed therein. prcd It appears therein that your client corporation is engaged in the business of importing and selling at wholesale of general merchandise. Its authorized capital stock amounts to P1,000,000.00. of which P250,000 has been subscribed and fully paid. The company's equity ratio is 70% Filipino citizens and 30% foreign. Inasmuch as the corporation needs additional capital for its business operation, and the Filipino subscribers are not in the capacity to infuse additional fund requirement, your queries are: Is it legal for the non-resident alien incorporators themselves to lend money to the corporation? What is the legal basis for such opinion? The exercise of implied powers is expressly recognized by the Corporation Code, particularly under paragraphs 7 and 11 of Section 36 thereof. The law provides thus: "SECTION 36. Corporate Powers and Capacity . Every corporation incorporated under this Code has the power and capacity. xxx xxx xxx 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage or otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution. xxx xxx xxx 11. To exercise such other powers as may be essential or necessary to carry out its purposes as stated in its articles of in corporation. The general rule is that the management of a corporation, in the absence of express restrictions, has discretionary authority to enter into all contracts and transactions which may be deemed reasonably incidental to its business purposes. (Ballantine on Corporations, sec. 83, at 224) The statement of the objects and purposes in the articles of incorporation sets the limit of the powers of authority of the management, both those stated in the articles or those given by statute. " So, the mention of general powers such as those ... to borrow money ... must be deemed auxiliary or ancillary to the primary, authorized purposes and limited thereby ." (Ballantine, Supra) Subject, therefore, to the above limitation, our answer to your query is in the affirmative. The nationality of the creditors is not material in the contraction of corporate debt. In addition, your attention is invited to the provision of Article 46 of The Omnibus Investments Code of 1987, which has increased the percentage of permitted foreign investment to forty percent (40%) of the outstanding capital of the enterprise. LibLex Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman