PHILIPPINES Law and Practice Contributed by: Francis L. Fragante and Jennifer Marie G. Castro, Cruz Marcelo & Tenefrancia
1. Legal System and Regulatory Framework 1.1 Legal System
effective on 23 February 2019. The RCC defines a corporation as “an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorised by law or incident to its existence”. Under the RCC, corporations are classified as either stock corporations or non-stock corporations. Stock corporations must have capital stock divided into shares and must be authorised to distribute to its shareholders dividends out of its surplus profits. Corporations created under the RCC are distinct from those created under special law, which are generally owned or controlled by the government, and are pri - marily governed by such special law, supplemented by the Revised Corporation Code as far as applicable. In addition to the RCC, Republic Act No 7042 or the Foreign Investments Act of 1991 (FIA), as amended by Republic Act No 8179 and further amended by Republic Act No 11647, provides for the nationality restrictions on business activities and capital require - ments for certain sectors when such activities and sectors include FDI. The Philippine Securities and Exchange Commission (SEC) is the national government regulatory agency charged with supervision over the corporate sector, the capital market participants, and the securities and investment instruments market, and the protection of the investing public. In this regard, the SEC enforces the provisions of the RCC. 1.2 Regulatory Framework for FDI As a general rule, foreign individuals, corporations or other entities are allowed to engage in business in the Philippines. However, the extent of equity held by foreigners in some business activities is restricted or limited under the 1987 Philippine Constitution and special laws. The FIA governs the participation of for - eign entities in economic and commercial activities in the Philippines. The Regular Foreign Investment Negative List prom - ulgated from time to time enumerates the business activities that are subject to foreign equity restrictions and limitations.
The Philippine legal system is characterised as a civil law jurisdiction, and its sources of law are derived from the 1987 Philippine Constitution, statutes, administra - tive and local issuances, and case law. The 1987 Philippine Constitution establishes a presi - dential system with three co-equal and independent branches: the legislative, the executive and the judi - cial. The executive branch is headed by the President who is elected by direct popular vote. It is responsible for implementing and enforcing laws and managing the bureaucracy through various departments and agen - cies. The legislative branch is divided into the Senate and the House of Representatives. They are authorised to make laws, alter and repeal them. The judicial branch is composed of a Supreme Court and lower courts. It holds the power to settle contro - versies involving rights that are legally demandable and enforceable. The 1987 Constitution also recognises local autono - my, allowing local government units (LGUs) to man - age their own affairs within the framework of national unity. Each LGU has elected officials and its own juris - diction, and is authorised to enact local ordinances, collect local taxes and promote local development. These LGUs enjoy local autonomy but remain under the supervision of the national government. Overview of the Laws and Regulations Applicable to a Business Operating in the Philippines In general, the Philippine Civil Code governs obliga - tions and contracts, which includes the framework for sources of obligation and the elements of a valid contract. The primary law governing corporations in the Philip - pines is Republic Act No 11232, otherwise known as the Revised Corporation Code (RCC), which became
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