SEC-OGC Opinion No. 23-09: Eligibility of Logistics Company to be Converted into 100% Foreign-Owned Corporation

On 12 May 2023, the Office of the General Counsel (“OGC”) of the Securities and Exchange Commission (“SEC”) issued SEC-OGC Opinion No. 23-09, where the SEC discussed whether a logistics company is eligible to be converted into a 100% foreign-owned corporation. 

The SEC concluded that a logistics company is not qualified to be a 100% foreign-owned corporation since it may be considered as a public utility vehicle (“PUV”) under Republic Act (“R.A.”) No. 11659 (or the Act Amending Commonwealth Act No. 146, Otherwise Known as the Public Service Act, as Amended). 

In arriving at such conclusion, the SEC discussed that foreign equity participation in a public utility is limited to 40%. R.A. No. 11659 clearly defines “public utility” as public service companies involved in distribution and transmission of electricity, petroleum and petroleum products pipeline transmission systems, water pipeline distribution systems, wastewater and sewerage pipeline systems, seaports, and PUVs. 

In relation thereto, “PUV” is defined in Section 2(k) of R.A. No. 11659 as “internal combustion engine vehicles that carry passengers and/or domestic cargo for a fee, offering services to the public, namely trucks-for-hire, UV express service, public utility buses (PUBs), public utility jeepneys (PUJs), tricycles, filcabs and taxis: Provided, That transport vehicles accredited with and operating through transport network corporations shall not be considered as public utility vehicles.”

The SEC noted that the amended Articles of Incorporation of the entity involved provides that its logistics services include the business of trucking such as but not limited to hauling, carrying, distributing, delivery, loading and unloading of all classes of goods and merchandise and other products as may be permitted by laws and render other services incidental or related to the aforesaid purposes. 

In a previous opinion, the SEC opined that any corporation that operates, manages, or controls PUVs is considered a public utility. Thus, if a freight forwarding company includes in its operation yellow plated trucks-for-hire, then the 40% foreign equity restriction for public utilities applies. 

Thus, based on the foregoing premises, the SEC opined that the entity involved may be considered as operating a PUV under R.A. No. 11659 as its trucks-for-hire carry goods and merchandise for the public.

Furthermore, the SEC noted that the entity’s purpose clause is couched in general terms without qualification, thus allows servicing the public indiscriminately. The SEC had previously opined that if the enumerated activities in the primary purpose of a corporation are too broad and encompassing making possible the undertaking of public utility, then such is deemed as nationalized or partly nationalized.

Accordingly, the entity may be considered engaged in a partly nationalized activity, specifically a public utility, and should comply with the 40% foreign equity restriction as provided in the relevant laws.

Despite its opinion, the SEC-OGC recommended that the entity involved should coordinate with the National Economic and Development Authority and Land Transportation Franchising and Regulatory Board as the SEC-OGC’s opinion is subject to the Implementing Rules and Regulations of R.A. No. 11659 and the pertinent agency’s interpretation of PUV as a public utility.