Opinion No. 19-39 Re: Online Retail; Secondary Purpose

ecurities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

18 September 2019

SEC-0GC Opinion No. 19-39

Purpose Re: Online Retail; Secondary

Mr. Romualdo l. Katigbak 389 Quezon Ave. corner West 6th St. West Triangle, Quezon City

Dear Mr. Katigbak:

confirmation of your opinion that online selling is allowed under the This refers to your letter dated 16 September 2016 requesting

Inc. (AFI). existing Amended Articles of Incorporation (AAOI) of Ayala Foundation

community it serves through imaginative programs and through the use of culture and the works of art of Filipino artists as part of its initiative to make the appreciation of Philippine art and culture more accessible to the AFI's online store will carry products that feature the Philippine

modern information technology.

refused to accept the application pending confirmation by the Commission that AFI may engage in online selling under its AAOI. Hence, this request. "Retail Sale via Internet" as an additional line of business; however, the BIR AFI applied with the Bureau of Internal Revenue ("BIR") to include

The Commission answers your query in the affirmative.

as Sections 86 and 87 of the Revised Corporation Code (RCC),1 provide: Sections 87 and 88 of the Corporation Code, which are reproduced

"SEC. 86. Definition. -- For purposes of this Code and subject to its provisions on dissolution, a non- stock corporation is one where no part of its income is distributable as dividends to its corporation was organized, subject to the provisions of this a non-stock corporation may obtain incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the Title. members, trustees, or officers: Provided, That any profit which

1 Republic Act No. 11232, effective 23 February 2019

Page 2 of 4

The provisions governing stock corporations, when pertinent. covered by specific provisions of this Title. shall be applicable to non-stock corporations, except as may be

or organized for charitable, religious, educational professional, "SEc. 87. Purposes. - Non-stock corporations may be formed

similar purposes, like trade, industry, agricultural and like provisions of this Title governing particular classes of non-stock chambers, or any combination thereof, subject to the special corporations." (Emphasis supplied) cultural, fraternal, literary, scientific, social, civic service, or

Section 132 of the RCC further provides:

"SEC. 13. Contents of articles of incorporation. - xxx xxx xxx

(b) xxx: Provided, That a non-stock corporation may not include a purpose which would change or contradict its nature as such; XXX

expressly granted in its charter or in the statutes under which it is created It is well-settled that a corporation has only such powers as are

or such powers as are necessary for the purpose of carrying out its express power(s).3 A corporation has both express and implied or incidental powers. Express powers are those which are enumerated in Section 35 of

articles of incorporation. Implied or incidental powers, on the other hand, the RCC, and those which are sanctioned by the State in the corporation's

are the corporation's "powers, attributes and properties...incident to its

or purposes as stated in its articles of incorporation."5 existence4", which may be "essential or necessary to carry out its purpose

not authorized to pursue commercial business activities, they may do so Though non-stock, non-profit corporations, as a general rule, are

reasonably necessary to enable the corporation to carry out powers when such income generating activities are essential, incidental or expressly granted and for the furtherance of the purpose(s) for which the corporation was established, and provided that income realized or derived therefrom shall not be distributable to members or officers but are used

if they are not essential, having in view the nature and object of the organized. However, activities merely convenient or useful are not implied for the furtherance of the purpose(s) for which the corporation was

corporation.6

Essentially the same as Section 14(2)of the Corporation Code 3 SEC Letter dated 20 June 1989 addressed to Mr. Philipps C. Comandante, citing 13 Am. Jur. Sec. 739. 5 Paragraph (g) and (k) of Section 35 of the Revised Corporation Code 6 SEC-OGC Opinion No. 11-12 dated 09 March 2011 addressed to Atty. Francis M. Egenias; SEC-OGC 4 SEC-OGC Opinion No. 20-09, citing Section 2 of the Corporation Code Opinion No. 11-11 dated 08 March 2011 addressed to Mr. James Yared Gaite, M.D.

Page 3 of 4 Article II of AFI's AAOI7 provides in part, to wit:

formed are: "SECOND. - That the purposes for which this Corporation is

XXX XXX XXX

Culture by,among maintaining museums and libraries, supporting ethnic 1 To preserve and enhance Philippine Art and other things, establishing and

artisans and craftsmen, and undertaking related activities that will encourage Filipinos, especially our youth, to appreciate their heritage ;

XXX XXX XXX

14. Generally, to do all such things, transact such

directly or indirectly necessary, suitable, or proper for business, exercise such powers and authority as may be

attainment of any the accomplishment_of any of the or more of the object herein purpose or the

to, or expedient for the Foundation; ... xxx (Emphasis ours) enumerated or which shall appear at anytime conducive

XXX XX XXX.

Thus, AFI's online selling of products that feature Philippine Culture

necessary and incidental to its primary purpose of preserving, enhancing furtherance of its purposes under its AAOI can be said to be reasonably and encouraging Philippine Art and Culture. Hence, AFI can engage in the and the works of Filipino artists to generate income to be used in the

same.

Further, a corporation authorized and/or registered as engaging in

or means of selling. Thus, as long as a corporation is authorized to engage in selling in furtherance of its purpose, it may do so by any means or mode available. The Commission has previously opined, to wit: selling in general 8may do so online, because online selling is just a mode

lawfully organized and which is stated in the articles of "It is settled that it is only in the business/es, for which it was business is necessary for the accomplishment of the purpose even legal to "stretch" the meaning of the purpose clause to cover incorporation, that a corporation should engage in. But if the of the corporation or incident to it, the corporation may also engage in such business (2 Oben and Oben, Comments on the Commercial Law of the Philippines, p.54). As a matter of fact, it is new and unexpected situations.

7 AFI's Amended Articles of Incorporation as per our records (As amended on 30 March 2016) 8 See BIR Certificate of Registration attached as Annex A of your letter

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situations or circumstances may come up which could not have the corporation. These doubts will sometime be due to poor incorporators or their legal counsel or, as is oftentimes the case, been foreseen at the time of the incorporation. Many times the purpose clause can be reasonably 'stretched' as to impliedly There will always be instances when doubts may arise as to draftsmanship or lack of foresight on the part of the original where it cannot, a proper amendment thereof would be necessary (Campos and Lopez Campos, Notes and Selected Cases on whether an act may be reasonably implied from the purposes of cover these new and unexpected situations. But in those cases Corporation Law, p.247)." 9

standing rule binding upon the courts, or upon the Commission in other be disclosed that the facts relied upon are different, this opinion shall be solely on the facts disclosed in the query and relevant solely to the particular issues raised therein and shall not be used in the nature of a cases of similar or dissimilar circumstances.1o If upon investigation, it will rendered null and void. It shall be understood that the foregoing opinion is rendered based

Please be guided accordingly.

General Counsel CAMYEO SNCORREA C

9 SEC Opinion dated 24 March 1982 addressed to Mr. Amado J. Lansang, Jr. 1o SEC Memorandum Circular 2003-15, No. 7