all taxes from January 1 to December 31, 1959; 75 percent of all taxes from January 1 to December 31, 1960; 50 percent of all taxes from January 1 to December 31, 1961; and 10 percent of all taxes from January 1 to December 31, 1962. A grantee of tax exemption, however, will be subject to full income tax after having enjoyed tax exemption for 6 years.

Firms or individuals granted exemption under Republic Act No. 35 and whose exemption period had not yet expired on June 20, 1953, are automatically granted exemption under Republic Act No. 901 for a total period not to exceed 10 years under the two acts. After 6 years of exemption they become subject to full income tax.

Firms or individuals granted exemption under Republic Act No. 35 whose exemption expired on or before June 20, 1953, upon application filed not later than September 20, 1953, were able to obtain exemption for a period of 6 years counted from June 20, 1953. After enjoying exemption for 6 years under the two laws they are subject to full income tax.

Excluded from the benefits of tax exemption are firms or individuals engaged or engaging in the processing of oil, gasoline, lubricants, and other similar fuels and byproducts.

The interpretation of "all" taxes is not clear, but the exemption is known to cover all internal revenue taxes, the tax on sales of foreign exchange, and custom duties and may include other taxes imposed by the Government and its political subdivisions.

A "new" industry is one which did not exist or operate on a commercial scale prior to January 1, 1945. Limited production of an article prior to January 1, 1945, on an experimental basis even though the product was offered to the public for sale does not preclude an industry from being considered "new" under the provisions of the law.

A "necessary" industry is one which will contribute to the attainment of a stable and balanced economy. The determination as to whether an in

dustry will contribute to the attainment of this objective will be made by the Secretary of Finance with the advice and assistance of the National Economic Council and a committee representing the Secretary of Commerce and Industry, the Economic Coordinator, and the Central Bank.

In addition to the foregoing a “necessary" industry may not require imported raw materials to a value exceeding 60 percent of the manufacturing cost plus reasonable selling and administrative expenses. The 60-percent limitation may be waived if the article produced is for export or is to form a component part of another article domestically manufactured. Waiver may not be granted unless the initial investment in machinery and equipment will be at least 200,000 pesos.

The Secretary of Finance may issue certificates of exemption in any industry determined to be "new and necessary" until the total productive capacity of all firms and individuals granted exemption in that industry is equal to total demand or consumption of the exempted commodity.

Applications for tax exemption are filed with the Secretary of Finance who determines, with the assistance of appropriate Government agencies, whether the industry meets all requirements and qualifications. If an application is approved, benefits begin from the date of filing of the application. Tax exemption may be suspended by the Secretary of Finance if the grantee fails to comply with any of the obligations imposed by the act or by regulations implementing the act.

Applications for tax exemption cover details of the operation or proposed operation, capitalization, ownership, and all other facts pertinent to a sound evaluation of its merits. No application for a proposed operation may be filed unless it is accompanied by a firm quotation for the machinery and equipment needed for the factory and a statement under oath that the applicant is ready to place orders for the machinery and equipment within 3 months after the application has been approved.

CHAPTER XIII

In general, business may be conducted in the Philippines by domestic and foreign entities upon compliance with certain implied or expressed for. malities connected with the country's economic development and exchange conservation programs and its business laws.1 2

As a preliminary step, proposed industrial enterprises of significance should be approved by the Government agency most directly concerned with the contemplated field of activity. For all new enterprises involving remittances abroad, the approval of the Monetary Board of the Central Bank is required.

With respect to entry requirements, the U. S. Congress passed legislation in 1954 providing that "treaty merchant" status would be accorded Philippine citizens entering the United States for commercial purposes when an Executive agreement between the Presidents of the United States and of the Philippines is signed providing for reciprocal treatment in this field. A bill is to be presented to the Philippine Congress in 1955 authorizing the President to enter into such an agreement.

If an agreement is concluded, as expected, nationals of each country wishing to enter the other country for commercial purposes will be assured of entry. In practice, Americans currently can enter the Philippines for commercial purposes, but conclusion of a bilateral agreement will mean that commercial entrants will be given. a more permanent protection since they will not be subject to domestic laws which could be changed unilaterally.

Prior to the actual establishment of a business enterprise in the Philippines, or the actual conduct of business there, certain legal requirements must be met. Legal prerequisites to the establishment of the forms of business organizations common in

1 Various restrictions and control measures affecting businesses are discussed elsewhere in this report. Important among these are restrictions on exchange discussed in chapter XI and tax matters discussed in chapter XII.

A major exception to the conducting of business by foreigners is the field of retail trade. The Retail Trade Law (Republic Act No. 1180) of 1954 provides for the gradual elimination of nonFilipinos from all types of retail trade. Citizens and business firms of the United States, however, are expressly exempt from the provisions of this law.

the Philippines the single proprietorship, the partnership, and the corporation-and to the conduct of business in the country by foreign proprietorships, partnerships, and corporations, as well as certain related matters, are outlined below. Basic legislative measures involved are the Code of Commerce, the Civil Code, and the Corporation Law, as amended.

BUSINESS ORGANIZATION

Single Proprietorships

There are no special legal prerequisites with which a single entrepreneur of any nationality must comply before he may engage in business in the Philippines, except that he must obtain a municipal license. Registration in the Mercantile Registry, a public commercial registry opened in all capitals of Provinces and in Manila, is optional, according to the Code of Commerce.

A merchant who wishes to register must supply notarized sheets of record providing the following details: Name, residence, business address, capital invested, date business commenced, and firm name. Aliens must attach alien registration certificates. When developments result in changes in any of the information submitted for record, such changes must be recorded.

Partnerships

Domestic partnerships.-Rules and regulations affecting the formation of partnerships, obligations and rights of partners, and special rules applicable to limited partnerships are outlined in title IX of the Civil Code of the Philippines, 1949. Title IX is similar to the United States Uniform Partnership Act and Uniform Limited Partnership Act.

Provisions pertaining to partnerships in general. Some provisions of the title in respect to partnerships in general which may be of interest to

prospective investors are substantially as follows: Two or more persons may form a partnership in the Philippines for any lawful purpose and the common benefit or interest of the partners by entering into a partnership contract or agreement. (By the contract of partnership the parties bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits among themselves. A contract of partnership may also be entered into for the exercise of a profession.)

A partnership may be constituted in any form, except that where immovable property or real rights are contributed thereto a public instrument is required.

Every contract of partnership having a capital of 3,000 pesos or more in money or property must appear in a public instrument recorded in the Office of the Securities and Exchange Commission."

A partnership has a judicial personality separate and distinct from that of each of the partners.

A partnership begins from the moment of execution of the contract, unless otherwise stipulated. Industrial partners may not engage in business for themselves unless expressly permitted to do so. Capitalist partners, in the absence of an agreement to the contrary, cannot engage for their own account in any operation of the kind engaged in by the partnership.

Every partnership must operate under a firm name which may or may not include the name of one or more of the partners.

All partners including industrial ones are liable pro rata with all their property, and after all partnership assets have been exhausted, for contracts properly entered into by the partnership. (A partner admitted into an existing partnership is liable for all obligations arising before his admission, except that this liability is to be satisfied out of partnership property unless there is a stipulation to the contrary. Those who are not members of a partnership but whose names are included in the firm name are subject to the same liability as partners.)

Upon dissolution of a partnership, creditors are paid in order of priority, with creditors of the partnership having priority over creditors of individual partners with respect to partnership property.

The Civil Code is silent on whether at least one partner of a Philippine partnership must reside in the Philippines.

Special provisions dealing with limited partnerships. Special provisions are made in title IX, chapter IV, of the Civil Code for the formation of a limited partnership, i. e., a partnership com

While the Civil Code is silent on precisely what information should be contained in the partnership contract or agreement, it is assumed that the usual facts should be provided, such as the name of the partnership, its business, location of the principal place of business, contribution and compensation of each partner, division of authority among partners, and duration of the partnership.

posed of two or more persons with one or more general partners (with unlimited liability) and one or more limited partners (with liability limited to the amount of capital paid in). It is required that persons wishing to form such a partnership sign and swear to a certificate setting forth the following details among others:

1. Name of the partnership, adding thereto the word "Limited." (The name of a limited partner may not appear in the firm name unless it is the surname of a general partner or the business was carried on in a name in which his surname appeared prior to the time he became a limited partner.)

2. Character of the business and location of the principal place of business.

3. Name and residence of each member, designating specifically the general and limited partners.

4. Duration of the partnership.

5. Contributions and compensations of each limited partner. (Contributions may be in cash or property but not services.)

The certificate must be filed for record in the Office of the Securities and Exchange Commission. Upon compliance with these prerequisites it is considered that a limited partnership has been formed.

Limited partners as such are not bound by obligations of the partnership. Such partners become liable as general partners, however, if they take part in the control of the business. Limited partners whose surnames are included in the partnership name contrary to the rule mentioned in (1) above also have unlimited liability to those who have extended credit to the partnership without knowing that the partners were not general partners.

Foreign partnerships.-To establish a branch or to do business in the Philippines foreign partnerships must file with the Office of the Securities and Exchange Commission three copies of their articles of partnership. Each copy should be accompanied by a certificate from a Philippine consul stating that the partnership has been established and authorized in accordance with laws of the home country.

If a Philippine consul is not located in the State in the United States where the partnership is located, a certificate from the office with which the partnership is registered is sufficient.

Corporations

Domestic corporations.-Private corporations, stock or nonstock, may be formed in the Philippines for any lawful purpose by 5 or more persons up to 15, the majority resident in the country, by filing with the Securities and Exchange Commission notarized articles of incorporation.

In general such articles must cover the following data: Name of the corporation; purpose or purposes for which formed; location of the principal office, which must be in the Philippines; duration, which normally may not exceed 50 years; names and residences of incorporators, i. e., members and/ or stockholders forming and composing the corporation; number of directors, normally not less than 5 or more than 11; if a stock corporation, the amount of capital stock in Philippine currency and number of shares into which stock is divided (if stock has no par value only the number need be stated); and if a stock corporation, the amount of capital stock or number of shares of no par value stock actually subscribed, the names and residences of subscribers, amount or number of shares of no par value stock subscribed by each, and the sum paid by each on his subscription.*

Certain additional details of a descriptive nature are required to be included in articles of incorporation for railways, tramways, wagon roads, and telegraph and telephone companies.

Fees for filing articles of incorporation of a stock company are based on the amount of capital stock and range from 25 pesos for capital stock of less than 50,000 pesos to 300 pesos for capital stock of 2 million pesos or more. If shares of stock are without par value, a par value of 100 pesos is arbitrarily set for each share for the purpose of fixing fees. For filing articles of incorporation of a nonstock corporation a flat fee of 25 pesos is charged. For filing amendments to articles as permitted by law, the fee is 10 pesos.5

Immediately after the filing of articles of incorporation, the Securities and Exchange Commission publishes in a newspaper of general circulation, and at the expense of the corporation, information on the firm's assets and liabilities. The Commission also issues to the incorporators a certificate of incorporation. A copy of the articles filed and certified may be received in courts and other places as prima facie evidence of the facts therein.

A code of bylaws must be adopted and filed with the Securities and Exchange Commission within 1 month of the filing of the articles of incorporation. The filing fee is 2 pesos.

If a corporation does not formally organize and commence transaction of business or construction of its facilities within 2 years from the date of incorporation its corporate powers cease. A corporation may be dissolved by the Court of First

It should be noted that the Securities and Exchange Commission will not file articles of incorporation of any stock corporation unless the articles are accompanied by a sworn statement of a treasurer elected by subscribers showing that at least 20 percent of the total authorized capital stock has been subscribed, and that for the benefit and to the credit of the corporation at least 25 percent of the subscription has been paid to him in cash, or there has been transferred to him property the fair value of which equals 25 percent of the subscription.

5 Articles of incorporation may be amended by a majority vote of the board of directors or trustees plus the assent of two-thirds of the members of a nonstock_corporation or the assent of stockholders representing two-thirds of subscribed capital stock of a stock corporation.

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Instance for the Province in which the principal office is located upon the voluntary application of a majority of the members or of stockholders holding two-thirds of the stock.

Corporate powers under Philippine law have the usual scope and limitations. Provision is made for the right to sue; transact business for which the corporation is lawfully organized; and deal in personal and real property subject to restrictions of the Philippine Constitution. Corporations may make bylaws for fixing or changing the number of officers and directors, transfer of stock, administration of corporate affairs, management of business, and disposition of stock; they may admit members, and issue and sell stock, if a stock corporation; enter into contracts; and acquire, hold, mortgage, pledge, or dispose of shares, bonds, securities, and other evidences of indebtedness of domestic and foreign corporations.

Among other limitations, no corporation may issue stock or bonds except in exchange for actual cash, or for property with a fair value equal to the par or issued value of the stock or bonds, or for profits earned by the corporation but not distributed. Issuance of stock or bonds, moreover, is subject to approval of stockholders representing at least two-thirds of all stock outstanding.

No corporation may make or declare a dividend except from surplus profits, or divide or distribute among stockholders and members capital stock or property other than actual profits until the corporation's debts are paid and its existence terminated.

No corporation may increase or diminish its capital stock unless concurrence is obtained from stockholders representing a majority of subscribed capital. If an increase in capital stock is approved, a certificate for increase of capital stock must be executed and filed with the Securities and Exchange Commission. It is expressly required that the certificate of increase state the amount of capital stock or number of shares of no par value stock of the increase actually subscribed, names and residences of subscribers, and amounts paid by each subscriber on his subscription. The certificate must be accompanied by a sworn statement from the treasurer showing that at least 20 percent of the increased stock (i. e., at least 20 percent of the increase of capital stock) has been subscribed and that at least 25 percent of the amount subscribed has been paid in cash or the corporation has received property valued at 25 percent of the subscription.

In general, corporate powers of a Philippine corporation are exercised, business of the corporation is conducted, and property of the corporation is controlled by the board of directors elected annually from among holders of stock, or where there is no stock from among members of the corporation. Each director of a stock corporation must own in his own right at least one share of the capital stock of the corporation. At