SEC-OGC Opinion No. 22-08: License to Transact Business in the Philippines; Philippine Branch

The Securities and Exchange Commission (“SEC”) granted KOBELCO Construction Machinery Southeast Asia Co. Ltd. Philippine Branch (KOBELCO-PH) a license to transact business in the Philippines under the following purpose: “to operate the business of wholesaling of hydraulic excavator, crane and its attachment, parts including components of said products.” 

The opinion of the Commission was sought with respect to the following matters:

1. Is the Branch Office of KOBELCO which is authorized under its present license allowed to engage in “after-sales support services” and coordination with local dealers for sales and marketing?
2. If such “after-sales support services” is deemed not covered under KOBELCO’s present license, does KOBELCO have to file a Petition for Amendment of License to engage in such business activity? and
3. Which documents must be submitted to reflect change in purpose?

The Commission cited Section 141 of the Revised Corporation Code (RCC) which provides:

Section 141. Application to Existing Foreign Corporations. – Every foreign corporation which, on the date of the effectivity of this Code, is authorized to do business in the Philippines under a license issued to it shall continue to have such authority under the terms and conditions of its license, subject to the provisions of this Code and other special laws.

The Commission also cited Section 143 of the RCC which provides that the license to transact business in the Philippines issued by the Commission to a foreign corporation subsists as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation (e.g., in this case, Thailand), unless such license is surrendered, revoked, suspended, or annulled. 

If the foreign corporation desires to pursue other purposes in the Philippines, the Commission opined that an amended license is required under Section 148 of the RCC which provides that:

Section 148. Amended License. – A foreign corporation authorized to transact business in the Philippines shall obtain an amended license in the event it changes its corporate name, or desires to pursue other or additional purposes in the Philippines, by submitting an application with the Commission, favorably endorsed by the appropriate government agency in the proper cases.

In this case, the Commission then determined whether the after-sales support services are covered by KOBELCO-PH’s license to transact business in the Philippines. The Commission discussed the purpose clause as stated in KOBELCO-PH’s license which provides that it intends to “operate the business of wholesaling of hydraulic excavator, crane and its attachment, parts including components of said products.”

The Commission previously opined that a corporation has only such powers as are expressly granted in its charter or such powers as are necessary for the purpose of carrying out its express power. Express powers are those general powers enumerated under Section 35 of the RCC and those which are sanctioned by the State in the corporation’s Articles of Incorporation (AOI). On the other hand, implied or incidental powers are those that are “essential or necessary to carry out its purposes as stated in its AOI.”

The Commission further discussed that implied powers of a corporation pertain only to such powers as are reasonably necessary to enable a corporation to carry out the express powers granted. The Commission even cited a previous opinion where it was opined that, “if the business is necessary for the accomplishment of the purpose of the corporation or incident to it, the corporation may also engage in such business.” As a matter of fact, it is recognized that it is legal to “stretch” the meaning of the purpose clause to cover new and unexpected situations. There is no need for an amendment in such situations. 

Applying the foregoing principles to the case, the Commission opined that the proposed after-sales support services are covered by KOBELCO-PH’s license as the selling of components and spare parts is part of the services offered to the customers after a sale of a machinery is made. Moreover, after-sales support services are necessary to and implied from the nature of the activity that KOBELCO-PH is engaged in – i.e., the wholesale of hydraulic excavator, crane, and its attachment parts. These services are necessary for KOBELCO-PH to cater to the maintenance of the machineries and respective queries or complaints of any of its customers in the Philippines. Similarly, since KOBELCO-PH is engaged in the wholesale of machineries, coordination with local dealers for sales and marketing of its products is also implied for it to be able to sell its products to the public. 

However, the Commission emphasized that the after sales services to be undertaken by KOBELCO-PH must be strictly limited to its customers, and not be pursued as a separate business activity. Moreover, coordination regarding sales and marketing must be limited to its own local dealers.

Therefore, the amendment of KOBELCO-PH’s license is not necessary for it to engage in the after-sales support and coordination with its local dealers.