Doctrine of ‘doing business’

Published May 26, 2022, 4:23 AM

by Atty. Jun De Zuñiga

                The doctrine of “doing business” is generally applicable to foreign corporations desiring to transact business in the Philippines. The law states that such foreign corporations should obtain a license from the Securities and Exchange Commission (Sec. 140, Revised Corporation Code). Such license is required when the proposed transaction amounts to “doing business in the Philippines”.

                “Doing business” is a broad concept. It is not defined by law. There is no general rule or governing principle laid down as to what constitutes “doing business” or “transacting” business in the Philippines. According to the Supreme Court, each case must be judged in the light of its peculiar circumstances. Thus, it has been held that a single act or transaction may be considered as “doing business” when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a singular act cannot be merely incidental or casual if it indicates the foreign corporation’s intention to do business.

                The Foreign Investments Act (FIA) seeks to enumerate the activities constituting “doing business” so as to include soliciting orders and service contracts, opening offices, appointing distributors, participating in the management, supervision or control of any domestic enterprise, and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts, or the exercise of functions, normally incident to the object of the business organization. The concept is therefore so broad that a foreign corporation desiring to undertake any business activity in the Philippines faces the risk of being charged with violation of law if such activity is categorized as “doing business” in the Philippines.

                What could be a good guide would be those activities, which by regulation or precedent, are held not to constitute “doing business” in the Philippines. Under the FIA, the following acts are excluded from the meaning of “doing business: mere investment as a shareholder in a domestic corporation, having a nominee director in such corporation, appointing a distributor which transacts business in its own name and for its own account, publication of a general advertisement, collecting information in the Philippines, maintaining a stock of goods for processing by another entity in the Philippines, consignment of equipment to be used by a local company for processing of products for export, and performing services auxiliary to an isolated contract of sale.

                On the other hand, there are judicial precedents holding that certain activities are not deemed as “doing business”. These will include the hiring of an attorney-in-fact to file criminal cases to protect the copyright of a foreign corporation. A foreign corporation is not doing business for accepting reinsurance from a domestic insurance company. Mere ownership of a property, unaccompanied by its active use in furtherance of business, is not doing business. The same ruling applies to the filing of collection suits by a foreign corporation as an assignee to claims. The mere act of exporting from one’s own country cannot be deemed as doing business; otherwise, Philippine exporters could also be deemed as doing business in the importer’s country. The same is true for a foreign corporation that merely imports goods from the Philippines. (Cases are cited in Divina on Commercial Law, Vol.1, pp. 691-694).“

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The above comments are the personal views of the writer. His email address is [email protected]