Flores, Kimberly Mil T.

Siplon, Charmila R.
JD-IV

FOREIGN INVESTMENT ACT LEGAL ANALYSIS

I. Introduction

This is a legal analysis providing for the best business organization

options of a European National and his Filipina wife who wish to
establish a retirement resort business in the Philippines.

II. Top Two Business Organizations Available to the Client

(Response to Query No.1)

A. Sole Proprietorship

The wife may register as a single proprietorship for the business.

She will own the land and the buildings of the resort. She will lease the
resort and her management rights for a period of 25 years to the
European-incorporated corporation so that it can manage the resort.
1. Pros
The greatest benefit of registering it as a sole proprietorship is the
simplicity of this business organization. It is not burdened by the strict
regulatory laws and the rules imposed upon corporations or
partnerships.1 The registration for such is also very simple for it is simply
made through the Bureau of Trade Regulation and Consumer Protection
of the Department of Trade and Industry (BTRCP).2
Furthermore, this business organization is also ideal since it meets
the following demands of the client: 1) purchase the land for the resort,
2) construct the building, resort, and restaurant in the land, 3) that he or
his company and his wife shall own it, 4) The business will annually
distribute a portion of its net income to its owners; and 5) that after 25

1 Sole Proprietorship at https://www.chanrobles.com/legal5cc1e.htm, last visited on July

21, 2019.
2 Id.
 Flores, Kimberly Mil T.
Siplon, Charmila R.
JD-IV
years, he can transfer all real properties of the business to his wife, who
has the option to continue the business or not.
For item number 3, although the business and the premises of the
resort are solely owned by the wife, the beneficial use thereof is enjoyed
by the company of the husband. Through this also, the business is able to
establish itself and operate without the need of complying with the
requirements that foreign nationals or corporations must comply with in
order to do so. For item number 5 which is the transfer of all properties
to the wife after 25 years, the process will be made simple as the wife
already owns the basic premises and can thereafter acquire any
additions thereto through ease by virtue of the lessor-lessee relationship
between her and the company.

2. Cons

The con for this option is the fact that it has unlimited liability such
that creditors of the business may proceed not only against its assets and
property but after the personal own personal assets and property of the
sole proprietor.3 The wife’s creditors may also run after the assets and
property of her single proprietorship business.4 This is because the law
considers the proprietor and the business as one and the same; the latter
being a mere extension of his person.5

B. Partnership

The husband and the wife enter into a particular and limited
partnership for the specific purpose of the resort business. The wife
contributes the land while the husband contributes the other necessary
capital for the partnership through his foreign company. To consider the
partnership as a Philippine National, it is suggested that the sharing

3 Supra note 1.
4 Id.
5 Id.
 Flores, Kimberly Mil T.
Siplon, Charmila R.
JD-IV
between the parties shall be 60% in favor of the wife and 40% in favor of
the husband.
1. Pros
A "partnership" is an artificial being created by operation of law
legal fiction with a separate legal personality separate from its partners.6
The greatest benefit of a partnership is organizing without being
burdened by the higher form of regulation, limitation and standards
imposed by law on corporations.7 Similarly, the partnership setup will
also meet the demands of the client stated and discussed in the previous
option. Lastly, the greater benefit of a partnership is the separate juridical
entity of the partnership. For this reason, in limited partnerships, the law
allows the limitation of the liability of certain partners to the extent of the
amount contributed to the partnership.8 The partnership cannot also be
made to answer for the personal debts of the partners.
2. Cons
The con for this type of business organization is that it requires a
more tedious process than the registration of a sole proprietorship.
Partnerships are required to be registered with the Securities and
Exchange Commission [SEC].9 Registration is made through filing the
Articles of Partnership with the SEC.10 The Articles of Partnership
contain all agreements of the partners.11 Registration requires the
following documents: [1] Proposed Articles of Partnership; [2] Name
Verification Slip; [3] Bank Certificate of Deposit; [4] Alien Certificate of
Registration, Special Investors Resident Visa or proof of other types of
visa [in case of foreigner]; [5] Proof of Inward Remittance [in case of non-
resident aliens].

6 Partnership at https://www.chanrobles.com/legal5cc1c.htm, last visited on July 21, 2019.

7 Id.
8 Id.
9 Id.
10 Id.
11 Id.
 Flores, Kimberly Mil T.
Siplon, Charmila R.
JD-IV

C. Recommendation

It is recommended that the first option which is through a sole

proprietorship is the better option for the client. This is because it is the
simpler and more economic between the two and provides for the easier
transfer of properties after the 25 years.
II. Structure of Ownership of the land for the retirement resort without
violating any constitutional or statutory prohibitions on land ownership
The best option of my foreign client is to lease the land through his
foreign based corporation for a long term contract of 25-50 years from
his Filipina wife, who shall exclusively buy and own the land. He has also
the option to only lease the land for a long term contract of 25-50 years
from any Filipino or corporation or association at least 60% of whose
capital is owned by Filipinos.12
The constitutional prohibition of aliens to acquire any private land
stems from Art. XII, Sec. 7 which states: “Save in cases of hereditary
succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold
lands of the public domain.”
To expound, the following may acquire private lands: 1) Filipino
Citizens; 2) corporations and associations at least 60% of whose capital
is owned by Filipinos; 3) aliens by hereditary succession, and 4) a
natural-born citizen of the Philippines who has lost Philippine
citizenship.13
Hence, aliens or foreigners cannot acquire real properties in the
Philippines.
Only Filipinos can both “acquire” and “hold” lands of public domain
or private property. In this case, the wife who is a Filipino is therefore
qualified to acquire the land for the retirement resort business. However,

12 Republic Act No. 7652, otherwise known as the Investors’ Lease Act.
13 2011, Fr. Bernas, 1987 Constitution.
 Flores, Kimberly Mil T.
Siplon, Charmila R.
JD-IV
the acquisition should not be under their conjugal properties since this
would indirectly circumvent the constitutional prohibition.14
Thus, he can hold the real property where he can build his
retirement resort business through his foreign based corporation for a
long term contract of 25-50 years from his Filipina wife, who shall
exclusively buy and own the land.
There are instances where aliens are worried to let their wife solely
own the land. They sometimes opt for a long-term lease contract with
another Filipino or corporations and associations at least 60% of whose
capital is owned by Filipinos which is allowed under P.D. No 471, Fixing
a Maximum Period for the Duration of Leases or Private Lands to Aliens
and Republic Act No. 7652, otherwise known as the Investors’ Lease Act
which is also allowed.
Therefore, he has two options to structure his right to hold the
private property for the retirement resort business.
III. Response To Query # 3 As To Whose Name The Buildings And The
Improvements Be Under
The planned buildings and improvements may be owned by his
wife. This is especially true if the single proprietorship option be
followed. Since a single proprietorship does not have a distinct juridical
personality from that of the wife, there would be no need to pay transfer
taxes. The improvements, however, will be under the name of the lessee
which is the corporation. However, these improvements may stay in the
resort and therefore, be owned by the lessor-wife without paying
transfer taxes since upon the expiration of lease contract, it is simply
optional for the lessee-corporation to ask for reimbursement from the
lessor-wife for any improvements in accordance to Article 1678 of the
New Civil Code.
Further, to emphasize, it is also allowable for either of the foreign
corporation, branch, domestic corporation or foreigner’s name since the
Constitutional prohibition applies only to ownership of land. It does not
extend to all immovable or real property as defined under Article 425 of
the Civil e.g. buildings, and improvements, those which are considered

AINA MANIGQUE-STONE v. CATTLEYA LAND, INC., AND SPOUSES TROADIO B. TECSON

14

AND ASUNCION ORTALIZ-TECSON. G.R. No. 195975, September 05, 2016

 Flores, Kimberly Mil T.
Siplon, Charmila R.
JD-IV
immovable for being attached to land, including buildings and
constructing of all kind attached to the soil.15
However, as to its tax consequence, the most favorable, as
emphasis, is one that is owned by his wife, since there will lesser transfer
taxes given the intent of transferring the properties to his wife after 25
years. If not with his wife, there will be possibilities of greater transfer
taxes and VAT included upon the transfer. Hence, it should be under his
wife.

15 J.G. Summit v. C.A. G.R. No. 124293, January 31, 2005