SEC RULES ON FOREIGN CITIZENS AS INCORPORATORS IN PHILIPPINE CORPORATIONS (A practitioner-oriented guide built around the Revised Corporation Code, the Foreign Investments Act, the Anti-Dummy Law, and SEC practice notes)
1. Statutory Foundations
| Source | Key Provisions on Foreign Incorporators |
|---|---|
| 1987 Constitution | Caps or bans foreign equity in particular sectors (e.g., mass media 0 %; public utilities 40 %; educational institutions 40 %; land ownership 0 %). |
| Revised Corporation Code of the Philippines (RCC, RA 11232, 2019) | § 10 defines who may be an incorporator; § 13 on “primary purpose” (must disclose if a foreign participation ceiling applies); §§ 22–23 on share and capital requirements. |
| Foreign Investments Act (FIA, RA 7042, as amended) | Provides the Foreign Investment Negative List (FINL), sets the US $200 k paid-in capital floor for wholly-foreign–owned enterprises engaged in domestic market activities not subject to higher constitutional/special-law limits. |
| Anti-Dummy Law (Commonwealth Act 108, as amended) | Criminalizes schemes (nominee, proxy, “dummy” arrangements) meant to evade nationality ceilings; defines “control” tests. |
| Special laws | E.g., Retail Trade Liberalization Act, PSA 2022, Build-Operate-Transfer Law, Mining Act—each may override general rules for its sector. |
2. Who May Be an Incorporator under the RCC
| Feature | Old Code (B.P. 68) | RCC (current) |
|---|---|---|
| Minimum number | 5 natural persons | 2^ natural or juridical persons |
| Maximum number | 15 | 15 |
| Residency of incorporators | Majority had to be Philippine residents | No residency requirement (but see notarization rules below) |
| Citizenship restriction | None in Code itself, but nationality ceilings applied via Constitution/FIA | Same: any foreigner can be an incorporator iff (i) proposed business is open, and (ii) the aggregate foreign equity after issuance stays within the ceiling. |
^ One-Person Corporations (OPC) now allowed: a single natural person (Filipino or foreign) or a single foreign juridical person may form an OPC, subject to the FINL.
3. Equity Ceilings & Control Tests
Sector-specific ceilings Constitutional & statutory limits are applied to the voting stock actually outstanding plus the “Grandfather Rule” if layer-upon-layer companies are used.
Control Tests
- Control Test (60 % rule): A corporation is “Philippine-national” if Filipinos own ≥ 60 % of outstanding capital stock entitled to vote and receive at least 60 % of all profits.
- Grandfather Rule: If a supposed Filipino corporation holds shares in another corporation operating in a partly-nationalized activity, drill down its own ownership to see the ultimate nationality. Triggered when (a) the first-layer shareholding is ≤ 60 % Filipino, or (b) there is doubt or a protest (e.g., Narra Nickel; Gamboa v. Teves).
Minimum Paid-In Capital for 100 % Foreign Ownership
- US $200 000 (≈ ₱10 M) for domestic-market enterprises outside FINL.
- US $100 000 if the enterprise uses advanced technology and employs ≥ 50 direct Filipino employees.
- Higher or lower thresholds for special sectors (e.g., ₱25 M for retail trade if foreign; ₱2.5 M/boutique if luxury retail).
4. SEC Documentary Requirements for Foreign Incorporators
| Document | Typical SEC/Company Registration & Monitoring Department (CRMD) practice |
|---|---|
| Articles of Incorporation & By-laws | Prepared through eSPARC (SEC’s online portal); every incorporator signs. |
| Cover Sheet | Indicates foreign equity percentage and whether FINL or special law applies. |
| Passport or Government-issued ID | For each foreign individual incorporator; must be legible and apostilled or consularized if executed abroad. |
| Board Resolution & Secretary’s Certificate | For foreign juridical incorporators authorizing investment and designating a signatory; likewise apostilled/consularized. |
| Proof of inward remittance / bank certificate | Only after incorporation for capital infusion; but SEC may ask during review when 100 % foreign. |
| Tax Identification Number (TIN) | All directors and incorporators, foreigners included, must secure a BIR TIN (Revenue Regulations 7-2012). |
| Notarization/Acknowledgment | If signing abroad: before PH embassy/consulate; or notarized then apostilled under the Hague Convention. |
| Resident Agent? | Not required for a domestic corporation (foreigners as shareholders only). Required for a foreign corporation licensed to do business. |
5. Mechanics of the Incorporation Process when Foreigners Are Involved
Name Reservation & FINL Check
- Use SEC’s CRS/eSPARC name check.
- The system blocks names if purpose matches FINL-restricted lines and foreign ownership exceeds allowed cap.
Draft Articles:
- Article II (Primary/Secondary Purposes) must state if an activity is “subject to 40 % foreign equity limitation under the Constitution/FINL.”
- Article VII (Authorized Capital Stock) must reflect the 25 % subscription / 25 %-of-subscription paid-in rule unless a higher FIA minimum applies.
Electronic Signatures
- SEC Memorandum Circular No. 16-2020 permits digital signatures with a specific digital certification clause + submission of a Notarization Page later.
Filing & Payment
- Upload PDFs, pay via eSPARC payment channels.
SEC Review
- Substantive: nationality computations, FINL compliance, name conflicts.
- Formal: properly apostilled IDs, correct share breakdown (Filipino vs foreign).
Certificate of Incorporation Issuance
- Once approved, SEC emails the digital certificate.
- Stock certificates can then be printed; books registered with BIR and LGU.
6. Post-Incorporation Obligations that Highlight Foreign Participation
| Filing/Action | Relevance to Foreign Incorporators |
|---|---|
| General Information Sheet (GIS) filed within 30 days of annual stockholders’ meeting | Must disclose nationality of each stockholder plus percentage holdings. SEC flags variances that breach ceilings. |
| SEC Form 16-F (Notice of Transfer of Shares) | Required when transfer changes foreign equity; may trigger FINL breach examination. |
| Reportorial Requirements on Inward Remittance | BSP reports for ≥ US $10 000; needed when repatriating dividends. |
| Anti-Dummy Compliance | Avoid side agreements granting foreigners control in excess of equity; board composition must mirror equity unless an allowed higher Filipino ratio is chosen. |
7. One-Person Corporations (OPC) and Foreign Nationals
Highlights
- Allowed if the single stockholder’s proposed business is not in FINL List A or List B.
- If 100 % foreign-owned and domestic-market, paid-in capital minimum of US $200 000 still applies.
- The sole stockholder may be a foreign juridical entity (e.g., a Singapore Pte. Ltd.), which appoints a Philippine resident agent.
8. Frequent Pitfalls & How to Avoid Them
| Pitfall | Compliance Tip |
|---|---|
| Using Filipino “dummies” to skirt a 40 % cap | Anti-Dummy Law imposes fines + 5- to 15-year imprisonment for both parties. Use genuine equity participation structures (e.g., joint ventures with veto rights rather than nominee titles). |
| Over-reliance on the 60-40 “book value” test | SEC may still apply the Grandfather Rule if the layer-through corporation is ≤ 60 % Filipino or suspicion exists. Trace beneficial ownership early. |
| Subscribing < US $200 k for a wholly foreign-owned domestic-market SME | The SEC will tag and reject; technology + 50-labor carve-out must be well-documented (BOI Certification of Advanced Technology). |
| Foreign incorporator’s signature without apostille/consularization | Leads to deficiency notices or outright rejection. Arrange authentication before eSPARC filing. |
| Forgetting to secure TIN for foreign directors | BIR will not stamp books; SEC will flag GIS. Assign a local liaison to process TIN (RDO 39 for non-residents). |
9. Interaction with Immigration Rules
- Being an incorporator ≠ permission to work. Foreign directors/officers who will actually manage need the appropriate 9(g) Working Visa or Special Investor’s Resident Visa (SIRV).
- 13(g) Pre-arranged Employment Visa or Special Non-Immigrant Visa (47(a)(2)) may apply to technical roles in PEZA/Bataan FAB entities.
10. Recent & Pending Policy Developments (as of May 2025)
| Development | Expected Effect on Foreign Incorporators |
|---|---|
| Public Service Act (PSA) 2022 implementing rules | Certain public utilities (e.g., airports, rail) re-classified as “public services,” lifting the 40 % cap—allows 100 % foreign incorporators. |
| eSPARC Revamp v3 (2024) | Full API connection to Immigration/BIR means auto-TIN validation for foreign directors; stricter mismatch flags. |
| Proposed FINL-13 | Draft circulating to remove “domestic market enterprise” capital floor and rely on sectoral caps—would let SMEs incorporate with < US $200 k even if 100 % foreign. Not yet in force. |
11. Practical Checklist Before a Foreign Citizen Signs as Incorporator
- Confirm activity vs. FINL & Constitution (obtain legal opinion).
- Map the equity layers (grandfather computation worksheet).
- Secure apostilled passport & Board Resolution (juridical persons).
- Get provisional TIN (if eSPARC processing).
- Draft Articles & By-laws with clear nationality clauses.
- Prepare capital funding plan (bank remittance path, BSP report).
- Line up immigration strategy for would-be officers.
12. Key Take-aways
- The RCC opened the door wider—foreign natural and juridical persons can now be incorporators without a residency quota.
- But the door’s width still changes with sectoral ceilings, the FIA capital floor, and the ever-present Anti-Dummy Law.
- Documentary precision (apostille, TIN, digital signatures) is crucial; eSPARC will reject even minor defects.
- Plan the whole structure up-front—capital flow, control rights, immigration—because unraveling a non-compliant set-up is costlier than building it right.
By mastering these rules, foreign entrepreneurs can enter the Philippine market with confidence, while counsel can steer incorporations through SEC review the first time around.