Opinion No. 16-22 Re: Power of Corporations to Enter into a Partnership or Joint Venture.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

04 October 2016

SEC-OGC Opinion No.16-22 RE:Power of Corporations to Enter into a Partnership or Joint Venture

FRED O.DELA CRUZ

First Orient Development and Construction Corporation Unit 703& 704,7F Alabang Business Tower 1216Acacia Avenue, Madrigal Business Park Ayala AlabangMuntinlupa City President and CEO

Dear Mr. Dela Cruz:

whether FODC-First Orient Development and Construction Corp. (FODCC) company having a similar purpose. may legally enter into a Joint Venture Agreement (JVA) with another This refers to your letter dated 04 April 2014 seeking clarification on

standard form of the Articles of Incorporation (AOI) did not mention that a You claim that FODCC was incorporated on 21 June 2006 when the

company may or may not enter into a JVA with companies with an allied or Amended AOI includes: similar line of business. You argue that despite this, FODCC may still enter into a Joint Venture Agreement because one of its Secondary Purpose in the

in connection with the foregoing purposes and powers or "12. To carry on any other lawful transactions whatsoever calculated directly or indirectly to promote the interests of the Corporation or to enhance the value of the properties, and to have enjoy and exercise all the rights, powers, and privileges which are now or which may hereafter be conferred upon similar Corporations organized under the laws of the Republic of the Philippines" which may seem to the Corporation capable of being carried on

SEC-OGC Opinion No. 16-22 RE: Power of Corporations to Enter into a Partnership or Joint Venture

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Company (PNOC) Hydro Projects. application to pre-qualify and bid for various Philippine National Oil In your letter,you disclosed that the query is in connection with your

Your query involves an examination of a decision of the PNOC; thus we decline to confirm your position or answer your question. Please note on matters which would require an examination and review of the acts and that as a matter of policy,the Commission refrains from rendering an opinion

rulings of another government agency.1 Hence, we decline to categorically answer your query.

However, for purposes of information only, we impart the following information.

The Commission has consistently opined2 that as a general rule, a corporation cannot enter into a contract of partnership with an individual or another corporation; however, it may be allowed to do so provided it complies with certain conditions, to wit:

1.The authority to enter into a partnership relation is expressly the corporation,and the nature of the business venture to be under-taken by the partnership is in line with the business authorized by the charter or articles of incorporation of the corporation involved.3 conferred by the charter of [or] the articles of incorporation of

2.If it is a foreign corporation, it must obtain a license to transact business in the country in accordance with the Corporation Code of the Philippines.4"

However, "while a corporation has no power to enter into a partnership, nevertheless, it may validly enter into a joint venture agreement, where the nature of that venture is in line with the business authorized by its charter."5

3 Id.,citing SEC letter dated 29 February 1980,addressed Mr.Antonio E.Librea 1 SEC Memorandum Circular No.15 series of 2003,No.5.6 2 SEC Opinion dated 17 August 1995,addressed to Sycip Salazar Hernandez and Gatmaitan 5 Decasa, Lucila M., Handbook on Private Corporation (Domestic & Foreign), Rex Printing Company, Inc., 2009 p.157,citing Tuason vs. Bolanos, G.R. No. L-4935,28 May 1954 citing Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp. 4 Id.,citing SEC letter dated 03 September 1984 addressed to Mr.Romeo P.Orsolino 1082 c/o Atty.Ray C.Espinosa and J.M.G.Hofilena.

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the Supreme Court discusses the nature of a joint venture, to wit: In Aurbach et al., v. Sanitary Wares Manufacturing Corporation,

that the partnership contemplates a general business with some no precise legal definition but it has been generally understood to from the partnership, since their elements are similar community of 45 Cal.2d.183,288 P.2d.12 289 P.2d.242 [1955]).The main execution of a single transaction, and is thus of a temporary nature. "The legal concept of a joint venture is of common law origin. It has mean an organization formed for some temporary purpose.(Gates v Megargel,266 Fed.811 [1920]) It is in fact hardly distinguishable interest in the business, sharing of profits and losses, and a mutual right of control.Blackner v.Mc Dermott,176 F.2d.498,[1949]; Carboneau v.Peterson,95P.2d.,1043[1939];Buckley v.Chadwick distinction cited by most opinions in common law jurisdictions is degree of continuity, while the joint venture is formed for the Tufts v.Mann 116 Cal.App.170,2 P.2d.500 [1931];Harmon v. Martin,395111.595,71 NE 2d.74 [1947];Gates v.Megargel 266 Fed. 811 [1920].This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal,and a particular partnership may have for its object a specific undertaking.(Art.1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that contract, it may however engage in a joint venture with others."6 (Emphasis and underscoring supplied.) although a corporation cannot enter into a a partnership

undertaking."7 What determines an agreement as a "joint venture" where although of a special type, since it pertains to a particular project or corporations are allowed to enter into is not the name or the nomenclature Thus, "a joint venture is essentially a partnership arrangement,

attached therein but the nature and essence of the undertaking between the corporations. The agreement between corporations become a joint venture when it is limited to a particular project that will allow the Boards of the co-

Worlgang Aurbach, et al., vs. Sanitary Wares Manufacturing Corporation, et al., G.R. No. 7 Villanueva, Cesar L., Philippine Corporate Law, (2010 ed.), 2010 at p. 283 citing Bautista Treatise on the Philippine Partnership Law (1978 ed.), at p.50. 75875,15 December 1989

SEC-OGC Opinion No. 16-22 RE:Power of Corporations to Enter into a Partnership or Joint Venture

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it is in line with the business authorized by its charter, to wit: standing opinion that a corporation may enter into a joint venture provided With respect to joint venture agreements, the Commission has a long

need not be registered with the Commission,provided however,that partnership/corporation.(SEC Opinions dated January 26, 1961 February 29,1980, November 11,1981 and April 29,1985.9 "In this connection, please be advised that the Commission, in a litany of opinions, has laid down the settled rule that two or more corporations may enter into a joint venture through a contract the joint venture will not result in the formation of a new (Emphasis and underscoring supplied.) or agreement if the nature of the venture is in line with the business authorized by their charters_which contract agreement

Please be guided accordingly.

CAMILO S,CORREA General Counsel MC

International Zeus Networks, Inc. 9 SEC Opinion No.04-42 dated 28 September 2004 addressed to Pacific Consultants Ibid.,at p.284