Can a Foreigner Set Up a Corporation in the Philippines?

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Yes, foreigners can legally set up and own a corporation in the Philippines. The Revised Corporation Code (RCC) and the Foreign Investments Act provide a liberalized framework for foreign nationals to incorporate, subject to certain industry and capitalization restrictions.

Key Rules

Here are the key rules for foreigners setting up a corporation:

1. Incorporators, the OPC, and Closed Corporation Option

• No Minimum Number or Residency Requirements: Under the RCC, any natural person, partnership, association, or corporation can organize a corporation. The law no longer requires a minimum of five incorporators, nor does it require that a majority of the incorporators be residents of the Philippines.
• One Person Corporation: A foreign natural person can register as a One Person Corporation (an OPC consisting of a single stockholder), provided the business activity is not restricted by constitutional or statutory limits on foreign participation.
• Closed Corporation: Foreign nations may register as a Closed Corporation, provided that the business they intend to engage in is not restricted by nationalization laws.

2. Directors and Mandatory Officers

• Board of Directors: Foreigners can be elected to the Board of Directors. However, if the corporation is engaged in a partially nationalized activity, the election of foreign directors is only allowed in proportion to their allowable participation or share in the capital of the entity. The previous requirement that a majority of the board must be Philippine residents has been removed.
• Corporate Officers: A foreigner can act as the President, provided they are also a director. However, the Corporate Secretary must be a citizen and a resident of the Philippines, and the Treasurer must be a resident of the Philippines.

3. Foreign Ownership and Minimum Capitalization Rules

The allowable percentage of foreign ownership and the required capital depend on the type of market the business serves:

• Domestic Market Enterprises (100% Foreign Ownership): A foreigner can own 100% of a domestic market enterprise if they meet a minimum paid-in equity capital of US$200,000. This minimum capital requirement is lowered to US$100,000 if the business involves advanced technology, is endorsed as a startup or startup enabler, or employs at least fifteen (15) direct Filipino employees.
• Export Enterprises (100% Foreign Ownership): If the corporation is an export enterprise—meaning it exports at least 60% of its output—it can be up to 100% foreign-owned without having to comply with the strict US$200,000 minimum capital requirement, provided the business is not restricted by the Negative List.
• Foreign Investment Negative List Restrictions: If the intended business falls under the Foreign Investment Negative List (FINL), foreign ownership will be capped or strictly prohibited regardless of the capital invested. For example, mass media and small-scale mining are 100% reserved for Filipinos (no foreign equity allowed), while the operation of public utilities and ownership of private lands are capped at 40% foreign equity.

Wholly Nationalized or Partly Nationalized Activities (FINL)

If the business engages in partially or wholly nationalized activities, foreign equity is strictly capped or outright prohibited. Examples include:

• 0% Foreign Equity (Reserved exclusively for Filipinos): Mass media, small-scale mining, retail trade enterprises with a paid-up capital of less than PHP 25 million, and private security agencies.
• Up to 40% Foreign Equity: Operation of public utilities, ownership of private lands, exploration and development of natural resources, and educational institutions.
• Up to 50% Foreign Equity: Operation and management of critical infrastructure (unless the foreigner’s home country grants reciprocal rights to Filipinos).

Closed Corporation for Foreigners?

Yes, foreigners can legally set up a close corporation in the Philippines, provided that the business they intend to engage in is not restricted by nationalization laws.

A close corporation restricts stock ownership to a maximum of 20 persons, imposes share transfer restrictions, and prohibits public stock offerings.

Pros: (a) Stockholders can directly manage the business without a board of directors; (b) Preemptive rights extend to all stock issues; (c) Stockholders can withdraw and compel the corporation to buy their shares for any reason.

Cons: (a) Managing stockholders become personally liable for corporate torts; (b) Strict transfer restrictions limit share liquidity.

The Revised Corporation Code (RCC) does not impose a general citizenship requirement for individuals to organize a corporation. However, if foreigners want to set up a close corporation, they must observe two major legal limitations:

1. Foreign Equity Restrictions (Negative List) Whether the close corporation can be 100% foreign-owned depends entirely on the nature of the business:

• If the business is open to foreign investment—such as an export enterprise or a domestic market enterprise that meets the minimum paid-in equity capital of US$200,000 (or US$100,000 under certain conditions)—it can be completely composed of aliens or foreigners.
• If the business is engaged in partially or wholly nationalized activities regulated by the Constitution or the Foreign Investments Negative List (FINL), the foreign incorporators and stockholders cannot own more than the allowable foreign equity (e.g., 40%).

2. Industries Excluded from being a Close Corporation Even if the foreign equity requirements are met, the law expressly prohibits certain industries from incorporating as a close corporation. You cannot set up a close corporation for:

• Mining or oil companies
• Stock exchanges
• Banks
• Insurance companies
• Public utilities
• Educational institutions
• Corporations declared to be vested with public interest.

Specific Requirements for a Close Corporation If the intended business is allowed to be a close corporation and complies with the foreign ownership limits, the foreigners must ensure that the Articles of Incorporation specifically provide the following defining characteristics:

1. All of the corporation’s issued stock shall be held by not more than twenty (20) persons.
2. All issued stocks shall be subject to one or more specified restrictions on transfer.
3. The corporation shall not list in any stock exchange or make any public offering of its shares.

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