Philippine Business Laws

In this article, I will be discussing Philippine Business Laws. This article is the same lecture I conducted last May 21, 2011 for students taking Master in Business Administration at the Central Colleges of the Philippines.

In a nutshell, the following are the different laws related to business in the Philippines:

I. LAW ON BUSINESS ORGANIZATIONS -- The following are the different types of business organizations that one may choose in putting up a business: Sole Proprietorship, Partnership, Corporation.


II. THE BARANGAY MICRO BUSINESS ENTERPRISE (BMBE) LAW or REPUBLIC ACT NO. 9178. This law encourages the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents.


III. LAW ON OBLIGATIONS AND CONTRACTS. This is governed by Articles 1156 upto 1430 of the Civil Code of the Philippines.


IV. LAW ON SALES, AGENCY & CREDIT TRANSACTIONS. This is governed by the Civil Code of the Philippines, specifically Articles 1458-1618 (Sales); Articles 1868-1932 (Agency); and Articles 1933-1995 (Credit Transactions).

V. MORTGAGE LAW. Mortgage involves the transfer of an interest in land or chattel as security for a loan or other obligation. The laws involving mortgage are Commonwealth Act No. 3135 as amended by Act 4118 (An act to regulate the sale of property under special powers in or annexed to real estate mortgages) and Commonwealth Act No. 1508 (Chattel Mortgage Law).


VI. LAWS RELATED TO INVESTMENT AND FINANCING.

a) Foreign Investment Act of 1991 -- Republic Act 7042 as amended by Republic Act 8179 provides for the policy that foreigners can now invest in all activities and enterprises in the Philippines, except those covered in the Negative List. Foreign Investments may seek incentives under the Omnibus Investment Code, such as tax holidays.

b) Built-Operate and Transfer Law -- Republic Act No. 6987 as amended by Republic Act 7718 (BOT Law) implements the policy of the state to recognize the indispensable role of the private sector as the main engine for national growth and development and provide the most appropriate favorable incentives to mobilize the private resources for the purpose.

c) Laws on Applicable Documents of Title. Commonwealth Act No. Act No. 2031, also known as the Negotiable Instruments Law, provides for the concept of a promissory note, bill of exchange and checks. Presidential Decree No. 115, also known as the Trust Receipt Law provides for the regulation of Trust Receipt transactions. Commonwealth Act No. 2137 (Warehouse Receipt Law) seeks to encourage transactions on negotiable warehouse receipts, which may be issued by a warehouseman engaged in the business of receiving commodities on deposit for storage.

d) Access Devices Regulation Act. Republic Act No. 8484 seeks to protect the rights and define the liabilities of parties who deal in credit cards and access devices.

e) Bouncing Check Law. Batas Pambansa Blg. 22 penalizes the mere issuance of worthless checks in payment of a pre-existing obligation. Under Administrative Circular No. 13-2001 issued on February 14, 2001 by the Supreme Court of the Philippines, A.C. 12-2000 does not remove imprisonment as an alternative penalty for violations of Batas Pambansa Blg. 22. In this regard, judges of Philippine courts are given discretion to determine whether the mere imposition of fine would best serve the interest of justice.

f) E-commerce Law. Republic Act No. 8792 penalizes hacking or cracking through unauthorized access or interference in a computer system/server and communication system involving e-banking transactions.


VII. LAW ON INSURANCE. An insurance is a contract whereby one party, for a consideration, agrees to indemnify another, against loss, damage, liability arising out of an unknown or contingent event. This is governed by P.D. 612 as amended by P.D. 1460 instituting the Insurance Code.


VIII. LABOR LAW.

a) Presidential Decree No. 442, also known as the Labor Code of the Philippines, provides for the rights of workers, including the minimum labor standards that should be provided to every worker. Some of the basic rights of workers include: right to a fair wage, right to equal employment opportunities to all, right to self-organization and collective bargaining, right of labor to a just fruits of production, security of tenure, hours of work, weekly rest day, wage and wage related benefits, safe and healthful conditions of work, and peaceful concerted activities including the right to strike in accordance with law.

b) Republic Act No. 7877 also known as the Sexual Harassment Act of 1995.


IX. INTELLECTUAL PROPERTY LAW.. Under Republic Act No. 8293, also known as the Intellectual Property Code of the Philippines, such law is enacted to streamline administrative procedures of registering patents, trademarks and copyright, to liberalize the registration on the transfer of technology, and to enhance the enforcement of intellectual property rights in the Philippines.


X. TAX LAWS.

a) Taxes on income. An active business income earned by an individual is subject to graduated rates of tax between 5-32% after deducting personal exemptions. For a corporation, a flat rate of 30% is imposed. Lastly, passive income shall be subject to withholding taxes.

b) Value Added Tax. A 12% tax shall be imposed on any person who, in the course of trade or business sells, barters and exchanges, leases goods, or renders services, or who imports goods.


Related Articles:

Law on Obligations and Contracts (Part 3)

Loan Agreements and Stipulations for Commercial Contracts

Requirements of banks for loan accommodations

Commercial documents necessary for loan availment by companies

Role of banks in Financing

Philippine Insurance Law (Insurable Interest in Group Insurance)

Labor Legislation related to the tourism and hospitality industry in the Philippines

Best Labor Practices in the Hospitality Industry

What is infringement under Philippine copyright laws?

What are the works covered by copyright protection under the Intellectual Property Code of the Philippines

Who is the owner of the copyright under Philippines Laws?

What is infringement under Philippine copyright laws?

Infringement is the unauthorized importation, duplication, exhibition or distribution of any works covered under copyright protection.

An infringement constitutes both civil and criminal penalties.

Under the Intellectual Property Code of the Philippines, the following are the remedies that may be exercised by the person whose rights are protected under copyright law:

(a) To file an injunction restraining such infringement. The court may also order the infringer to desist from an infringement to prevent the entry into the channels of commerce of imported goods that involve an infringement, immediately after customs clearance of such goods.

(b) To file a civil action for actual damages, including legal costs and other expenses, which the victim may have incurred due to the infringement as well as the profits the infringer may have made due to such infringement.

(c) To file an action for moral and exemplary damages, which the court may deem proper, wise and equitable and the destruction of infringing copies of the work even in the event of acquittal in a criminal case.

In an infringement action, the court shall also have the power to order the seizure and impounding of any article which may serve as evidence in the court proceedings.

(d) To file a criminal action of infringement under Section 217 of the Intellectual Property Code of the Philippines.

What are the works covered by copyright protection under the Intellectual Property Code of the Philippines

There are two kinds of works that may be covered by copyright protection under the Intellectual Property Code:

I. ORIGINAL WORKS

These refer to literary and artistic works, and are considered original intellectual creations in the literary and artistic domain protected from the moment of their creation and shall include the following:

(a) Books, pamphlets, articles and other writings;

(b) Periodicals and newspapers;

(c) Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in writing or other material form;

(d) Letters;

(e) Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows;

(f) Musical compositions, with or without words;

(g) Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models or designs for works of art;

(h) Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art;

(i) Illustrations, maps, plans, sketches, charts and three-dimensional works relative to geography, topography, architecture or science;

(j) Drawings or plastic works of a scientific or technical character;

(k) Photographic works including works produced by a process analogous to photography; lantern slides;

(l) Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings;

(m) Pictorial illustrations and advertisements;

(n) Computer programs; and

(o) Other literary, scholarly, scientific and artistic works.


II. DERIVATIVE WORKS

The following derivative works shall also be protected by copyright:

(a) Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary or artistic works; and

(b) Collections of literary, scholarly or artistic works, and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents.

The above shall be protected as new works, provided that such new work shall not affect the force of any subsisting copyright upon the original works employed.

Who is the owner of the copyright under Philippine Laws?

Under Section 178 of the Intellectual Property Code of the Philippines, copyright ownership shall be governed by the following rules:

1) In the case of original literary and artistic works (which includes books, articles, lectures, dramatic/choreographic works, musical compositions, designs for works of art, paintings, sculpture, engraving, photographic works, audio visual or cinematographic works, computer programs, and other literary, scholarly, scientific and artistic works) copyright shall belong to the author of the work;

2) In the case of works of joint authorship, the co-authors shall be the original owners of the copyright and in the absence of agreement, their rights shall be governed by the rules on co-ownership.

3) In the case of work created by an author during and in the course of his employment, the copyright shall belong to:

(a) The employee, if the creation of the object of copyright is not a part of his regular duties even if the employee uses the time, facilities and materials of the employer.

(b) The employer, if the work is the result of the performance of his regularly-assigned duties, unless there is an agreement, express or implied, to the contrary.

4) In the case of a work-commissioned by a person other than an employer of the author and who pays for it and the work is made in pursuance of the commission, the person who so commissioned the work shall have ownership of work, but the copyright thereto shall remain with the creator, unless there is a written stipulation to the contrary.

4) In the case of audiovisual work, the copyright shall belong to the producer, the author of the scenario, the composer of the music, the film director, and the author of the work so adapted. However, subject to contrary or other stipulations among the creators, the producers shall exercise the copyright to an extent required for the exhibition of the work in any manner, except for the right to collect performing license fees for the performance of musical compositions, with or without words, which are incorporated into the work; and

5) In respect of letters, the copyright shall belong to the writer subject to the provisions of Article 723 of the Civil Code of the Philippines which states:

"Art. 723. Letters and other private communications in writing are owned by the person to whom they are addressed and delivered, but they cannot be published or disseminated without the consent of the writer or his heirs. However, the court may authorize their publication or dissemination if the public good or the interest of justice so requires."


Related Article:

Requirements for Copyright Registration

What is a quitclaim in relation to labor law?

A quitclaim, in relation to labor law, is defined as a waiver of a claim by an employee against his employer. An employer who may want to prevent an employee from filing future cases for the recovery of his monetary claims would be encouraged to prepare a quitclaim agreement in favor of the employee to prevent the latter from filing future monetary claims. In other words, a quitclaim is executed in order to settle once and for all the disputes arising from such employment relation and to close the lid on an impending litigation.

Are quitclaim agreements valid? Yes, quitclaims are valid contracts under Philippine laws. The validity of quitclaims coincides with Article 1306 of the Civil Code of the Philippines which states: "The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy."

The requisites for a valid quitclaim are: 1) that there was no fraud or deceit on the part of any of the parties; 2) that the consideration for the quitclaim is credible and reasonable; and 3) that the contract is not contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law. (See Francisco Soriano, Jr. vs. NLRC et al., G.R. No. 165594 April 23, 2007). In other words, employees, must not have been deceived in signing, or taken advantage of their vulnerability and ignorance of the law.

A quitclaim is a valid and binding, provided that it constitutes a credible and reasonable settlement, and that the one accomplishing it has done so voluntarily and with a full and complete understanding of its import and consequences. (See Plastimer Industrial Corporation et al. vs. Natalia C. Gopo et al. G.R. No. 183390 February 16, 2011).

Usually, a quitclaim is prepared by the employer and is being utilized in instances where an employee files a labor dispute and subsequently agrees to a settlement, or when a resigning employee has been terminated from employment but given a substantial severance pay so that no future litigation can be filed by the employee for recovery of additional monetary claims.

Are there instances when a quitclaim has been declared void and ineffective? The answer is in the affirmative. According to jurisprudence, even if an employee has signed a satisfaction receipt for his claims, it does not necessarily result in a valid quitclaim. A quitclaim may not be considered as a valid agreement where a worker agrees to receive less compensation than what he is entitled to recover. It is well-settled that a deed of release or quitclaim cannot prevent an employee from demanding benefits to which he is legally entitled. The reason why quitclaims are commonly frowned upon as contrary to public policy, is that the employer and the employee do not obviously stand on the same footing, the tendency for the employer to drive the employee to the wall. (See Lourdes Marcos et al. vs. NLRC et al., G.R. No. 111744 September 8, 1995)

While rights may be waived under Article 6 of the Civil Code of the Philippines, the waiver must not be contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law. A quitclaim agreement is considered void where it obligates the workers concerned to forego their benefits while at the same time exempting the employer from any liability that it may choose to reject. This also runs counter to Article 22 of the Civil Code of the Philippines which provides that no one shall be unjustly enriched at the expense of another.

So how can quitclaims be validly enforced? It boils down to being transparent during negotiations. Parties must be well-informed of all the necessary data to enable each one to make a sound decision before signing a quitclaim agreement. All cards must be laid down the table with nothing to hide. This way, parties can effectively negotiate on a substantial settlement, even if it does not coincide with each other's ideal expectations.

What is the Canada Border Services Agency?

The Canada Border Services Agency (CBSA) was created on December 12, 2003 by virtue of the Canada Border Services Agency Act. Under Section 5(1) of said Act, the CBSA is responsible for providing integrated border services that support national security and public safety priorities and facilitate the free flow of persons and goods, including animals and plants, that meet all requirements under the program legislation by:

(a) supporting the administration or enforcement, or both, as the case may be, of the program legislation;

(b) implementing agreements between the Government of Canada or the Agency and a foreign state or a public body performing a function of government in a foreign state to carry out an activity, provide a service or administer a tax or program;

(c) implementing agreements between the Government of Canada or the Agency and the government of a province or other public body performing a function of the Government in Canada to carry out an activity, provide a service or administer a tax or program;

(d) implementing agreements or arrangements between the Agency and departments or agencies of the Government of Canada to carry out an activity, provide a service or administer a program; and

(e) providing cooperation and support, including advice and information, to other departments and agencies of the Government of Canada to assist them in developing, evaluating and implementing policies and decisions in relation to program legislation for which they have responsibility.

The CBSA implements the provisions of the Customs Act of Canada. Under the Customs Act, the CBSA shall have the following powers:
• ensure the collection of duties or taxes levied on imported goods;
• control the movement of people and goods into and out of Canada; and
• protect Canadian industry from real or potential injury caused by the actual or contemplated import of dumped or subsidized goods and by other forms of unfair competition.

By virtue of the amendments of the Customs Act of 2009, the CBSA has the authority to provide facility for all commercial trade chain members to electronically submit trade information in advance of their shipment's arrival in Canada. Being notified in advance of the trade information of shipment arrivals in Canada will ensure better and more secured way to protect the Canadian industry from potential damage caused by the actual or contemplated importation of dumped goods and other forms of unfair competition. For more information visit the Canada Border Services Agency eManifest Portal.


References:

Canada Border Services Agency Act

Customs Act

Tips on Incorporating under Philippine Laws

When forming a domestic corporation in the Philippines, bear in mind that the Securities and Exchange Commission (SEC) is the government agency tasked with the implementation of registration requirements for domestic corporations. Accordingly, allow me to share you some tips in forming a domestic corporation:

a) Choose your corporate name beforehand. Please bear in mind that you cannot use a corporate name which is similar or confusingly similar from other corporations that are already existing and registered at the SEC. In thinking of a company name, the words "Inc.", "Incorporated," "Corp.", and "Corporation" are phrases that must be attached or included to your proposed corporate name. In addition, you must be ready for at least 6 choices of corporate names so that you will not have a difficult time falling in line when reserving your corporate business name for purposes of registration.

b) The following are the documentation requirements for purposes of registration as of this posting:

 Reservation of Corporate Name Confirmation;
 Articles of Incorporation with undertaking by the incorporators to change the corporate name immediately upon receipt of notice or directive from the SEC that another corporation, partnership or person has acquired a prior right to the use of that name, or that name has been declared misleading, deceptive, confusingly similar to a registered name, or contrary to morals, good customs or public policy;
 By-laws;
 Treasurer’s Affidavit;
 Certificate of Bank Deposit of the paid-up capital of the corporation.

c) In devising the articles of incorporation, please be reminded that of the authorized capital stock to be declared, 25% of the authorized capital stock must be subscribed by the incorporators and 25% of the subscribed capital stock must be paid, in which case, the total paid-up capital must not be less than P5,000.00.

d) The following are the prescribed contents of the articles of incorporation as mandated by the Corporation Code and as per directive of the Securities and Exchange Commission:

 Primary purpose of the corporation;
 Place where the principal office of the corporation is to be located;
 Name, nationality, Tax Identification number and residence of the incorporators. Under the Corporation Code, the incorporators must consist of at least five but not more than 15 natural persons, of legal age, and majority of whom must be residents of the Philippines as stated in the articles of incorporation;
 The number of shares subscribed by each incorporator. It is a legal requirement that each incorporator must have a subscribed share of the capital stock of the corporation, not necessarily paid;
 The total amount of paid up capital from the subscribed capital stock;
 The designated Treasurer of the Corporation.

e) In devising the By-laws of the corporation, the same must be executed at the principal office where the corporation is to be located.

f) The treasurer's affidavit signifies a sworn statement by the designated Treasurer of the Corporation that: (i) he or she has been elected by the subscribers as the treasurer of the corporation, and shall act as such until a successor has been duly elected and qualified in accordance with the by-laws of the corporation; (ii) he or she is subscribing under oath that at least 25% of the authorized capital stock of the corporation is subscribed, 25% of the subscribed capital stock has been paid for the benefit and credit of the corporation; (iii) he or she authorizes the Securities and Exchange Commission and Bangko Sentral ng Pilipinas to examine and verify the bank deposit acccount in his/her name as Treasurer-In-Trust for the Corporation which represents the paid up capital of the corporation; (iv) he or she authorizes the SEC to examine the pertinent books and records of accounts of the corporation as well as supporting papers to determine the utilization and disbursement of the said paid-up capital; (v) he or she waives the right of the corporation to a notice and hearing in the revocation of the Certificate of Incorporation of the Corporation in case the said paid-up capital is not deposited or withdrawn prior to the approval of the articles of incorporation.

g) The articles of incorporation, Treasurer's Affidavit and Certificate of Bank Deposit must be subscribed before a notary public. In addition, the articles of incorporation must be signed by at least two instrumental witnesses who must not be designated incorporators of the corporation.

h) The Stock and Transfer Book of the Corporation must be registered at the Securities and Exchange Commission within one month from the time a Certificate of Incorporation has been issued by the SEC.

For more information visit the website of the Securities and Exchange Commission.