[ESTABLISHING A BUSINESS ENTITY IN THE PHILIPPINES]
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entity, which acts as a market research tool, communications interface, or product training arm for the foreign business entity it represents. Because of its limited role disseminating information about the foreign business entity’s products and services, it does not have the legal personality to conclude contracts on its own. It also cannot derive income locally from such operations. 6. By establishing a regional operating headquarters. Usually connected to a multinational corporation, a regional operating headquarters is an office which is established in the Philippines for the limited purposes of offering qualifying services to the multinational corporation’s affiliates, branches, and subsidiaries, and which are allowed to earn income from these activities only, despite the fact that it is actually considered a foreign business entity under Philippine law. 7. By establishing a regional area headquarters. Also, usually connected to a multinational corporation, a regional area headquarters is an administrative office, tasked with supervising and coordinating the different branch offices, subsidiaries, or affiliates, within the Asia-Pacific region, of such multinational business entity. It is prohibited from earning income from or concluding revenue-generating business in the Philippines and does not deal directly with the clients and external contacts of the multinational corporation. 8. By merging or consolidating with an existing domestic corporation. A foreign corporation can merge with a domestic corporation, and the surviving
corporation absorbs the other corporation. A foreign corporation may also consolidate with a domestic corporation to form an entirely new entity- a single corporation. 9. By entering into a management contract with an existing domestic corporation. Under this arrangement, a foreign business entity undertakes to manage all or most of the business of an existing domestic corporation for a period not exceeding five years. 10. By entering into technology transfer agreements. A technology transfer agreement is a contract between a foreign business entity and domestic business entity, the object of which is the transfer of knowledge or the transfer and licensed use of all forms of intellectual property. The foreign corporation assumes no risk in the venture of the domestic corporation. Even if the domestic corporation is not profitable, it is still obligated to pay royalties for the use of the foreign technology. II. Matters to be Considered when Choosing a
Particular Business Entity Type 1. The nature of the business.
It is important to consider the kind of business to be conducted because, under Philippine laws, some businesses require particular business entity types. A bank, for example, must always be a stock corporation. If the business is an energy generation or mining or any other operation which will use the natural resources of the Philippines, then only a joint venture between the government and the private business entity is possible. Furthermore, in such a joint venture, only 40% of the private business entity can be
ILN Corporate Group – Establishing a Business Entity Series
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