Opinion No. 10-13 RE : Doing Business; Jewelry Auction not a retail trade business

'.,.' " . , Republic of the Philippines ,"""",", Department of Trade and Industry Securities and Exchange Commission SEC Bldg. EDSA, Greenhills, Mandaluyong City 30 March 2010 SEC-OGCOpinion No. 10-13 Re: Doing business; Jewelry Auction not a retail trade business DEL ROSARIOAND DEL ROSARIO 15th Floor, Pacific Star Building Makati Avenue corner Sen. Gil Puyat Avenue Makati City 1200, Philippines Gentlemen: This refers to your letter dated 14 July 2009 requesting confirmation of the opinion that a limited liability company may lawfully do business in the Philippines through a branch office or subsidiary. In your letter, you stated that: 1. Your client, Roberto Galleries, LLC ("Company") is a limited liability company ("LLC") registered in the State of California, United States of America ("USA"). 2. The Company is engaged in the business of auctioning jewelry and the scope of its business is limited only to the territory of the USA. The Company would like to expand its business here in the Philippines. The two queries that need to be addressed are: 1. Is an auction of jewelry covered by the concept of "retail trade" in the Philippines? 2. If auction of jewelry is not considered a retail trade, how may the Company do business in the Philippines? With regard to your first query, the answer is negative. Retail trade is defined under Republic Act No. 8762, also known as the "Retail Trade Liberalization of 2000" as: http://www.sec.gov.ph II +(632) 584 0923

• "SECTION 3. Definition. - As used in this Act:. (1) "Retail Trade" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption, but the re strictions of this law shall not apply to the following: (a) Sales by a manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or produced by him if hi's capital does not exceed One hundred thousand pesos (P100,OOO.OO); (b) Sales by a farmer or agriculturist selling the products of his farm; (c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital: Provided, That the restaurant is incidental to the hotel business; and (d) Sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization." To constitute a retail business, the following must be present: (l)The seller should be habitually engaged in selling; (2)The sale must be direct to the general public; and (3)The object of the sale is limited to merchandise, commodities or goods for consumption.! The last element refers to the subject of the retailer's activities or what he is selling, that is, consumption goods or consumer goods. Consumer goods may be defined as 'goods which are used or bought for use primarily for personal, family or household purposes. In other words, consumer goods are goods which by their very nature are ready for corisumption:2 In the case of the Company, auction of jewelry does not come within the ambit of retail business as defined by Republic Act No. 8762 since the Company's goods are not sold directly br readily available to the general public, but only to those who are invited to participate in a competitive bidding process. Further, the target clients of the Company need not be the final end user. As for your second concern, there are different modes of establishing business presence in the Philippines; In case the foreign investor intends to actively transact business and derive income from the Philippines, then it may establish a 1 Marsman VS. First Coconut central Company, Inc., G.R. No. 139841,20 June 1988; SECOpinion No. 64, series of 2003, dated 27 November 2003, addressed to Atty. Jose Oscar M. Salazar. 2Id. 2

.. . • .. subsidiary, whether whally-awned 'Orpartly awned, 'Ora branch that is licensed ta da business in the Philippines. The Campany may 'Organizea whally-owned Philippine campany, and must. camply with the natianality restrictians and capitalizatian requirement. 1 If the paid-in equity capital is' at least equivalent ta the amaunt 'Of US$200,000.00, the allawed fareign equity is up ta 'Onehundred percent (100%). Otherwise, the fareign equity is limited up ta farty percent (40%) anly.2 Finally, since an LLC is nat recagnized under Philippine law, it cannat establish a branch ta engage in jewelry auctian i n the Philippine market. Hawever, the Campany may apt ta register as a fareign-awned sale proprietarship with the Bureau 'Of Trade Regulation and Cansumer Pratectian 'Of the Department 'Of Trade and Industry.3 It shall be understaad that the faregaing apinian is rendered based salely an the facts and circumstances disclased and relevant salely ta the particular issues raised therein and shall nat be used in the nature 'Ofa standing rule binding upan the Cammissian in ather cases whether 'Of similar 'Or dissimilar circumstances. If, upan investigatian, it will be disclased that the facts relied upan are different, this apinian shall be rendered null and vaid. VERNETTE G. UMALI-PACO .General ca~ 1 Republic Act No. 7042. as amended by R.A. No. 8179, Section 7 (1991). 2 Seventh Regular Foreign Investment Negative List dated 08 December 2006 in relation to R.A No. 7042, as amended, Section 8. 3 RA No. 7042, as a mended, Section 5. 3