SEC OGC Opinion No. 22-11: License to Transact Business

In an email to the Securities and Exchange Commission (“SEC”), Mitsui & Co. (Asia Pacific) Pte. Ltd (“MAP”) disclosed that it was incorporated in Singapore and is one hundred percent (100%) owned by Mitsui Co. Ltd of Japan. Under Singaporean law, MAP is allowed to engage in any kind of business in general, except for business activities that require special license which MAP may be qualified to apply for. MAP also established a branch office in the Philippines and MAP would like to enable its Manila branch to lend money to any member of the Mitsui Group, which pertains to companies based in the Philippines in which Mitsui owns shares of stock, if the need arises.

The opinion of the Securities and Exchange Commission (“SEC”) was sought to address the following issues:

1. Whether or not the MAP branch in Manila may lend money to companies within the Mitsui Group without amending MAP Manila Branch’s SEC license;
2. If the SEC license needs to be amended, whether MAP Manila Branch can include lending of money as a business activity; and
3. Whether or not there is any prerequisite for MAP Manila Branch before it can apply to SEC for such amendment of license.

The SEC answered the above-mentioned issues in seriatim.

Nature, authority, powers and duties of a branch office of a foreign company 

The SEC stated that a branch office has no separate juridical personality. A branch office of a foreign company carries out the business activities of the head office and derives income from the host country. While branches are treated as separate business units for commercial and financing reporting purposes, in the end, the head office remains responsible and answerable for the liabilities of its branches which are under its supervision and control. 

Citing Sections 140 and 141 of the Revised Corporation Code of the Philippines (“RCCP”),  the SEC stated that the authority, powers, and duties of a foreign corporation which intends to do business in the Philippines are derived from its License to Transact Business. A reading of the License to Transact Business of MAP’s Manila branch reveals that it does not expressly provide for lending funds to other members of the Mitsui Group.

As a rule, corporations are artificial entities granted legal personalities upon their creation by their incorporators in accordance with law. As such, corporate acts that are outside those express definitions under the law or articles of incorporation or those committed outside the object for which a corporation is created are ultra vires, except when acts are necessary  and incidental to carry out a corporation’s purposes conferred by the RCCP and by the corporation’s articles of incorporation.

The test to determine whether a corporate act is in accordance with its purpose is a question of the logical relation of the act to the corporate purpose expressed in the charter, i.e. whether the act in question is in direct and immediate furtherance of the corporation’s business, fairly incident to the express powers and reasonably necessary to their exercise. The following requisites must concur:

1. The act is one which is lawful in itself, and not otherwise prohibited;
2. The act is done for the purpose of serving corporate ends; and
3. The act is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense.

Engagement in lending activities

Based on the foregoing discussion, MAP Manila Branch may lend a part of its corporate funds to members of the Mitsui Group without amending its license since the said act is fairly incidental to the express powers granted to the MAP Manila Branch under its License to Transact Business. The management of a corporation, in the absence of express restrictions, has the discretionary authority to enter into contracts and transactions which may be deemed reasonably incidental to its business purposes.

The SEC further stated that it must be noted, however, that the lending activity to be undertaken by MAP Manila Branch should be strictly limited to the members of the Mitsui Group and should not be pursued as a regular and a separate business activity. it should be resorted to only when need arises and should only be done for the purpose of serving corporate ends.