Foreign corporations doing business without a license in the Philippines: penal sanctions

The Civil Code of the Philippines provides that, “Ignorance of the law excuses no one from compliance therewith.” (Art. 3) Thus, for foreigners about to do business, or who are already doing business without a license, in the country, consider this as a gentle reminder: doing so is punishable by fines and/or imprisonment.

Under the Corporation Code: “No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.” (Sec. 133)

The Supreme Court has categorically declared that, "the prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code." (Home Insurance Co. vs. Eastern Shipping Lines, G.R. No. L-34382, 20 July 1983)

Sec. 144 of the Corporation Code states, thus – “Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein 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. If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee or officer of the corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code.”

But what does doing business actually mean? The determination of whether a foreign corporation is doing business in the Philippines must be based on the facts of each case. (Rimbunan Hijau Group of Companies vs. Oriental Wood Processing Corporation, G.R. No. 152228, 23 September 2005)

According to the Supreme Court, to be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license. (B. Van Zuiden Bros., Ltd. vs. GTVL Marketing Industries, Inc., G.R. No. 147905, 28 May 2007)