Doing business with residents agents

With the attention the Philippines is getting because of the government’s massive infrastructure spending through the Build Build Build program and the formulation of new policies limiting constraints in doing business, the country is slowly turning in to an investor magnet. Such moves seem to be attaining its goals as the Philippine Statistics Authority reported that the total approved foreign investments for the first quarter of 2019 amounted to P46 billion which is more than a three-fold increase compared with the P14.2 billion approved in the same period in 2018.

Recently, the Philippines landed as the third best country to invest or do business in 2019 among 67 countries, according to CEOWORLD magazine. As a result, the rate of corporations intending to establish their businesses in the country has been increasing.

In order for foreign corporations to do business in the Philippines, companies may establish a branch or representative office.  A rep office is a mere extension of the foreign corporation. It is not required to have directors or officers separate and distinct from the head office. It is, however, mandated to appoint a resident agent. Choosing one is not as simple as it seems. Thus, having some background on resident agent’s duties and the legal requirement in appointing one would be valuable, if not a necessity.

Under Article 145 of the Revised Corporation Code (RCC), the appointment of a resident agent is a condition to the issuance of a license for a foreign corporation to transact business in the Philippines. The resident agent is generally tasked to receive notices on behalf of a non-resident entity.

The following matters must be kept in mind to avoid inconveniences or legal issues in the future, especially to a starting entity in the Philippines.

First, Article 144 of the RCC states that a resident agent may be an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines. It further provides that for domestic corporations acting as a resident agent, it must be of sound financial standing and be of good standing as certified by the Securities and Exchange Commission (SEC). Such additional requirement on the standing of corporations was introduced by the recent amendments in the code this year.

Second, the appointment of the resident agent must be backed by a board resolution and an agreement executed by the proper authorities of the foreign corporation. The resident agent must signify its acceptance of the appointment. The corporation must also state in the said agreement that it consents that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office in the form and substance as follows:

“The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by the SEC a license to transact business in the Philippines, that if at any time said corporation shall cease to transact business in the Philippines, or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of summons or other legal processes may be made upon the SEC and that such service shall have the same force and effect as if made upon the duly authorized officers of the corporation officers of the corporation at its home office.”

Third, the appointment of the resident agent is not permanent and can be revoked at the instance of the Company and in case the foreign corporation decides to change its resident agent, it must submit to the SEC a copy of the board resolution or certification from the duly authorized officer of the corporation formally revoking the appointment as resident agent, together with a duly authenticated written power of attorney designating a new person as resident agent.

Fourth, we must also be aware of other policies outside the Revised Corporation Code which must be considered in appointing a resident agent. One good example is the registration of a branch office as employer with the Social Security System (SSS).

The registration form (SSS Form R1) requires that the resident agent appearing in the SEC registration must be the signatory thereof. So, one must ensure that the resident agent to be appointed is engaged and so authorized to sign the forms. Needless to say, the resident agent must also concede to such additional responsibility.

Fifth, the failure of a foreign corporation to appoint or maintain a resident agent is a ground for the revocation of the license granted to a foreign corporation to do business without prejudice to other grounds provided under special laws as provided under the RCC.

Furthermore, the Supreme Court in Granger and Associates v. Microwave Systems, G.R No. 79986 dated Sept. 14, 1990, stated that “the purpose of the rule requiring foreign corporations to secure a license to do business in the Philippines is to enable us to exercise jurisdiction over them for the regulation of their activities in this country. If a foreign corporation operates in the Philippines without submitting to our laws, it is only just that it not be allowed to invoke them in our courts when it should need them later for its own protection.”

Hence, the failure to appoint and the consequent revocation of the license to do business in the country would prevent the foreign entity from seeking redress or protection under our laws.

Finally, the requirement aims to protect the creditors in the country where the foreign corporation is doing business and receiving its income.  It must be emphasized that foreign corporations reside outside the territorial jurisdiction of the country and keeping in mind the distinct personality of the corporation from its shareholders, the government must ensure that non-resident entities seeking protection and enjoying the privilege of doing business in the Philippines will be subjected to the country’s jurisdiction.  Without such resident agent, there will be a need to resort to expensive and time consuming extra-territorial service of writs and processes.

Andrei Dominic D. Anchoriz is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].