Wednesday, January 12, 2011

Basic queries of foreigners desiring to do business in the Philippines

Our company is an LLC (limited liability company). It provides an umbrella under which individuals may operate and receive individual immunity similar to those enjoyed by shareholders in a corporation.  It has the advantage that income flows through to the members of the LLC and is taxed at their individual rates.  There is no “corporate” tax.  My questions are as follows:
a.  Is there a similar entity in the Philippines? There is none.
b.  Would the Philippines give full faith and credit to this American entity under the rules of comity? Recognition as such legal entity in America, yes. But to actually conduct business in the Philippines pursuant to its purpose/s, an entity must be duly registered as a Philippine corporation.
c.   Would the American LLC be recognized in the Philippines as a legitimate owner of the entity which we form there? Yes.
d.   Are shareholders or the individual owners and officers shielded from individual legal liability for the acts of the corporation?  If not, what is their exposure? As a general rule, shareholders and officers of the corporation are not liable for such acts. However, directors and other officers who willfully and knowingly vote for or assent to patently unlawful acts of the corporation, or who are guilty of gross negligence or bad faith in directing the affairs of the corporation, or acquire any personal or pecuniary interest in conflict with their duty as such directors, trustees or officers, shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.
With respect to debts or monetary obligations of the corporation, shareholders are liable only to the extent of their subscriptions.
e.   In some civil law countries, officers and owners of corporations can face criminal penalties for what we consider civil matters in this country.  What is the law in the Philippines and what risks must we consider? Please elaborate on the acts or omissions considered civil matters in America. At any rate, the Philippine Corporation Code (“Code”) provides that, violations of any of the provisions of the Code or its amendments shall be punished by a fine of not less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos, or by imprisonment for not less than thirty (30) days but not more than five (5) years, or both, in the discretion of the court.
f.   Likewise, can the officers and shareholders of a company be held liable for the acts of the corporation in the Philippines? In the absence of malice, bad faith, or specific provision of law, a director or an officer of a corporation cannot be made personally liable for corporate liabilities.
g.   How difficult or easy is for someone to pierce the corporate veil in the Philippines? This one really depends on the lawyer and the surrounding circumstances.The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
h.   Are employees permitted to sue their employers for personal injury? In cases of work-connected disability, sickness or death, the Philippines has a law entitled  Employees’ Compensation and State Insurance Fund (“Fund”). The liability of the Fund is exclusive and in place of all other liabilities of the employer to the employee or his dependents or anyone otherwise entitled to receive damages on behalf of the employee or his dependents.However, under our law on quasi-delicts (in the New Civil Code), employees may still sue the corporation and its officers for civil damages if malice or bad faith on the part of the latter contributed to such injuries.     For injuries caused by fellow employees? Again, under our law on quasi-delicts, the owners and managers of an establishment or enterprise are responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions.
Such responsibility ceases when the owners and managers prove that they observed all the diligence of a good father of a family to prevent damage.
i.    Are there any special labor laws we should be aware of, i.e. labor relations, pension and health benefits, are employees, employees at will, etc.?
Yes. The Labor Code, the Social Security Law, the Employees’ Compensation and State Insurance Fund, and the National Health Insurance Act are the most important laws.

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