SEC OGC Opinion No. 23-10: Retail Trade Law; Exceptions

Teko Solutions Asia, Inc. (“Teko Solutions”) sought opinion from the Securities and Exchange Commission (“SEC”) on whether or not the sale of parts and other materials to independent technicians qualifies as retail trade as defined and contemplated in Republic Act No. 8762, commonly known as the Retail Trade Liberalization Act of 2000.

Teko Solutions is a domestic corporation with ownership structure of 75.50% Filipino and 24.50% foreign (American). Its primary purpose, as stated in its Articles of Incorporation, is to engage in information technology (“I.T.”) solutions, I.T.-enabled services, e-commerce, web design, and applications to various clientele. Its flagship business, ‘teko.ph,’ serves as an e-commerce platform for maintenance and repair services of personal mobile devices, air-conditioning units, refrigeration equipment, and other household appliances (the “Services”). Notably, Teko Solutions aims to stock parts and materials needed for the Services to enhance efficiency and to provide complete solutions to customers.

First Query – Incidental Powers

Teko Solutions sought clarification on whether the sale of parts and materials as part of its service offering could be considered an incidental activity, falling within the general powers of a corporation. The SEC opined that it is vital to understand that a corporation’s powers are derived from its charter and must be essential to fulfilling its stated purpose. 

Upon reviewing Teko Solutions’ Articles of Incorporation, it was evident that the sale of parts and materials was not explicitly authorized. Moreover, this activity was not found to be crucial or incidental to the corporation’s primary business, which revolves around providing a platform for independent technicians and customers to transact. As a result, the sale of parts and materials was not deemed within the corporation’s general powers.

Second Query – Retail Trade Law

Teko Solutions inquired whether the sale of parts and materials to independent technicians qualifies as retail trade under the Retail Trade Law. This law defines “retail trade” as the consistent sale of merchandise, commodities, or goods directly to the general public for consumption. To constitute retail trade, three key elements must concur: (i) the seller must be consistently engaged in selling, (ii) sales must be directed to the general public, and (iii) the goods sold must be intended for consumption. 

The differentiation between consumer goods, designed primarily for personal or household use, and producer goods, intended for further business or industrial purposes, is crucial. In applying these principles to Teko Solutions, it became apparent that the sale of parts and materials to independent technicians was associated with producer goods. These goods were not intended for personal or household consumption and, therefore, did not fall under the definition of retail trade as outlined in the law. Rather, the sale of parts and other materials to the independent technicians involves sale of producer goods because said parts and materials will be used by the independent technicians in rendering their services. Accordingly, the SEC opined that Teko Solutions’ sale of parts and other materials to its independent technicians is not within the purview of the Retail Trade Law.