Financing Company Registration Philippines: SEC Rules and Capital Requirements

Financing company registration in the Philippines is handled by the Securities and Exchange Commission (SEC). Under the Financing Company Act of 1998 (Republic Act No. 8556), a financing company must be organized as a stock corporation, meet the minimum paid-up capital for its location, and comply with the Corporation Code and the requirements of the Act before the SEC will register its articles of incorporation. No person or entity may hold itself out as a "financing company" without SEC authority. The steps below set out the path from incorporation to registration.

What counts as a financing company

Under Section 3 of the Financing Company Act of 1998, financing companies are corporations — other than banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized under special laws — primarily organized to extend credit facilities to consumers and to industrial, commercial, or agricultural enterprises.

The law lists the ways this credit is extended: direct lending; discounting or factoring commercial papers or accounts receivable; buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; and financial leasing of movable as well as immovable property.

The same section defines financial leasing as a non-cancelable lease where the lessor acquires property at the instance of the lessee, and the periodic payments amortize at least seventy percent (70%) of the purchase price or acquisition cost, plus a margin of profit, over an obligatory period of not less than two (2) years. The lessee holds and uses the property, bears repairs, maintenance, insurance, and preservation costs, but has no obligation or option to purchase the property at the end of the lease.

Capital requirements and ownership rules

Section 6 of the Act sets the minimum paid-up capital based on where the financing company is located:

• Ten million pesos (P10,000,000) if located in Metro Manila and other first class cities;
• Five million pesos (P5,000,000) in other classes of cities; and
• Two million five hundred thousand pesos (P2,500,000) in municipalities.

At least forty percent (40%) of the voting stock must be owned by citizens of the Philippines. A foreign national may own stock only if the country of which he is a national accords the same reciprocal rights to Filipinos in the ownership of financing companies or their counterpart entities in that country.

Financing companies already existing and in operation before the effectivity of the Act were required to comply with the minimum capital requirement within one (1) year from that date.

The registration process with the SEC

Section 7 requires compliance with the Corporation Code and lays out what the SEC must be satisfied of before registering the articles of incorporation of any financing company:

1. Comply with existing laws. All requirements of existing laws to engage in the proposed business must have been met.
2. Satisfy the SEC on organization and integrity. The organization, direction, and administration, as well as the integrity and responsibility of the organizers and administrators, must reasonably assure protection of the general public's interest.
3. Comply with the Financing Company Act. All requirements of the Act must be complied with.

Financing companies incorporated or registered before the approval of the Act, and actually existing and operating as such, were required to file an information sheet with the SEC, in the form prescribed by the Commission, within sixty (60) days after notice from the SEC.

Section 7 also makes it clear that no person, association, partnership, or corporation may hold itself out as doing business as a "financing company," "finance and investment company," or any other title tending to give the public the impression that it is engaged in financing company operations unless authorized under the Act.

Regulators and powers after registration

The SEC enforces the Act and issues implementing regulations, except where the Bangko Sentral ng Pilipinas (BSP) has supervisory authority over financing companies licensed to perform quasi-banking functions, and where the Monetary Board prescribes financing company rates and charges under Section 5.

Under Section 9, financing companies may, among other powers:

• Engage in quasi-banking and money market operations with prior BSP approval;
• Engage in trust operations, subject to the General Banking Act, upon prior BSP approval;
• Issue bonds and other capital instruments subject to BSP rules;
• Rediscount paper with government financial institutions;
• Participate in special loan or credit programs of government financial institutions; and
• Provide foreign currency loans and leases to enterprises earning foreign currency, subject to existing laws and BSP rules.

The Monetary Board, in consultation with financing companies and the SEC, is empowered under Section 5 to prescribe the maximum rates of purchase discounts, lease rentals, fees, service, and other charges, and to change, eliminate, grant exemptions from, or suspend these rules when warranted.

Penalties for operating without authority

Section 14 imposes a fine of not less than Ten thousand pesos (P10,000.00) and not more than One hundred thousand pesos (P100,000.00), or imprisonment of not more than six (6) months, or both, at the court's discretion. This applies to persons, associations, partnerships, or corporations — including managing officers — that engage in the financing company business without SEC authority, hold themselves out as financing companies without authority, use trade or firm names containing "Financing Company," "Leasing Company," "Finance and Leasing Company," "Finance and Investment Company," or similar designations without authority, or violate the Act.

Frequently asked questions

How much capital do I need to register a financing company in the Philippines? It depends on location: P10,000,000 for Metro Manila and other first class cities, P5,000,000 for other classes of cities, and P2,500,000 for municipalities, under Section 6 of the Financing Company Act of 1998.

Can a foreigner own a financing company in the Philippines? At least 40% of the voting stock must be Filipino-owned. A foreign national may own stock only if his country grants reciprocal rights to Filipinos in the ownership of financing companies or their counterpart entities there.

What happens if I operate as a financing company without SEC registration? Section 14 imposes a fine of P10,000 to P100,000, imprisonment of up to six months, or both, and this can reach the managing officer of the entity.

Practical takeaways

• Organize as a stock corporation and confirm your paid-up capital against the P10,000,000 / P5,000,000 / P2,500,000 tiers based on your location.
• Keep at least 40% of voting stock in Filipino hands, and check reciprocity rules before bringing in foreign equity.
• Expect the SEC to assess not just documents but the integrity and responsibility of your organizers and administrators.
• Avoid using "financing company" or similar names in any advertising or documents until the SEC authorizes you.
• If you plan quasi-banking, trust operations, or foreign currency lending, secure the required BSP approvals.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 8556 - AN ACT AMENDING REPUBLIC ACT NO. 5980, AS AMENDED, OTHERWISE KNOWN AS THE FINANCING COMPANY ACT

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.