Circumventer the Anti Dummy Laws

The law is quite specific that a Philippine corporation must be 60% owned and subscribed by Philippine citizens. Indeed the anti-dummy legislation was introduced to achieve this very purpose. The penalties available for contravention of these laws include five to fifteen years imprisonment, sequestration of assets and deportation. Put quite simply, foreign participation in a Philippine corporation may not exceed 40% and foreign investment in a Philippine corporation may not exceed 40%.

I personally know of one such case whereby a foreigner lost his entire investment as a result of undertaking measures to circumnavigate the anti-dummy laws, much as you have suggested in your post and wish to caution group members, who may not be aware of this legislation, from following your advice which I know may have disastrous personal repercussions.

Provision is also included for awards to be made to those supplying information to the authorities regarding breaches of this legislation. The essence of the problem remains that a minority of foreigners cannot accept the rules of a place they have chosen to call home. Realization for some takes longer than for others. The wealthy business and land owning minority who have enormous power and influence simply have no need of foreign investment. We need tom accept that land ownership and corporation ownership, beyond 40%, is not going to happen. Relax, enjoy and save a fortune on paracetamol or take the big silver bird.

Paul G.

Setting Up A Corporation in the Philippines, and Warning Regarding Anti Dummy Laws

September 30, 2005

Almost everything can be done on the Internet nowadays in establishing a corporation in the Philippines.

Incorporation can only be done by at least Five (5) Filipino Citizens or Philippine Residents. Also note that foreigners can only own up to 40% of the stocks (for a stock corporation).

Once you have these people ready, you can reserve or file your incorporation papers online. You can go to http://www.sec.gov.ph . There you get your own username and password easily on their online registration system. All the documents you need to file to the SEC can be generated there. Print six copies and file it and you can get the certificate of incorporation in a day or two. Of course you'll need to have a bank deposit made by your treasurer at the bank of your choice with your Resolution appointing such Treasurer. The minimum deposit is P5,000.00. That is for a corporation with P20,000.00 Capital. of course, you'll need a higher capital. If your capital is 1 Million Pesos. Twenty five percent must have been subscribed. P250,000 and 25% of the total subscription must have been paid. P62,500.00 must be deposited in the Bank.

Depending on what business you want to establish, you would need a place to conduct the business. My consulting firm uses a virtual office located at the Enterprise Tower in Makati. They handle both my calls and mails and keeps me updated on my PC.. I can even instruct them to forward all my calls to any phone I want. I pay them $120 per month for that and works well with me. I work in a home office but all meetings are conducted in a high-rise building :).. I can use the building and it amenities for 40 hours per month. I can even sit there and plug my laptop while I wait for my clients.

Local Business Permits cannot be done online. So this is the bureaucratic part. It's best that you get a "trusted" Filipino (who knows how this is done) to do it for you.

Union Bank has an online banking facility for corporations. I use that to manage my company's finances. I got a payroll ATM card for all my employees (teleworkers-programmers). EON Card. No initial deposit needed. I send there pays online.

Your corporation needs a Tax Identification Number... You can get the form to fill-up at the forms menu of the www.bir.gov.ph (Form 1903.)

If you have an employee or hire employees, your corporation needs to be a member of the Social Security System.

In order to make a business work here in the Philippines... You need to have a good business plan... If you don't have that... you're risking all your investment. Research! A lot of opportunities in the Philippines... but you need to know your market here to make everything work.

The Philippine law requires at least 5 up to 15 Filipinos to incorporate a business. In order for them to become Incorporators, they must have subscribed and has paid for at least 1 Share of Stock. They can even subscribe just one share but they need to pay for it.

Let us say for example, you would want to set a corporation. In order to meet Philippine laws, there is a provision wherein you can make Classes of Stocks. e.g. Your putting up a corporation with 1,000,000 shares... Remember that the shares of stocks determine the ownership... We need to comply with 60% Filipino ownership..

Class A Shares- For Filipinos Only (60%) 600,000 shares with a par value of 1 Peso. This means that you made the stocks affordable for Filipino Investors and you are expecting them to shed out a total of 600,000 Pesos on the Corporation's Capital. At least you have complied with the law that states 60% of the shares must be subscribed or paid for by Filipinos. And Yes... One Filipino buys 599,996 shares... and 4 stockholders bought one share each... is acceptable. Now you have complied with the 60% ownership.

Class B Shares- Open for Foreigners - or you may call this Preferred Shares (40%) 400,000 shares with a par value of 100 Pesos (Take note.. the par value should always be a whole number.. no decimal points or centavos)

Here you are expecting 40 Million Pesos worth of investment from Foreigners and still you have complied with the 40% limit for foreigners.

So the total Authorized Capital if every share of stock is paid will be PhP 40,600,000.00

The bottom line, you followed the law and you have a sufficient operating capital.

Incorporators need not be the same people that would comprise the Members of the Board or the Directors of the Company. You have to establish that in the by-laws. They may be the stockholders of the company determined during the meeting. All meetings must be agreed recorded in a minutes book by the appointed Corporate Secretary. Also, in order to become a Director or Member of the Board... You must own at least one (1) share.

The SEC Online Registration and Filing System also automatically generates the By-Laws... Read it first before you file so that you can amend or change some statements pertaining to how the corporation will be operated.... But, so that it will not be a hassle... Don't change that yet... Amend it only after you have received the Certificate of Incorporation...Glen