September 10, 1980

Atty. Abbas M. Basman

Dear Atty. Basman:

This has reference to your letter dated June 14, 1980 requesting opinion on the query posed
therein. cdtai
It appears from your letter that the Guimba Industrial Development and Construction
Corporation (Guideco, in short) was registered in 1963 and since that time up to the present has
organized eight (8) more corporations as its subsidiaries engaged in different purposes or goals.
You wish to know how Guideco can qualify as a holding company as well as its resulting
obligations as such; and that you be furnished with the necessary information and/or guidelines
relative thereto.
Ballantine defines a holding or parent company as "one which controls another as a
subsidiary or affiliate by the power to elect its management. Affiliates are those concerns
which are subject to common control and operated as part of a system" (Ballantine Law on
Corporation, p. 208). In other words, a holding company is one which holds stocks in other
companies for purposes of control rather than for mere investment. If a corporation owns a
majority of stock in another with no idea of exercising control, but simply for the return which
the investment will bring, it is not an actual holding company, though it may be regarded
potentially as such. Consequently, if Guideco possesses the power of control either directly or
indirectly through the eight (8) corporations it has organized, then it may be deemed a parent or
holding company in relation to the series of corporations it has established. If the eight (8)
corporations are related to each other by common control of voting stock and operated as parts of
a system or enterprise, they may be deemed affiliated companies.
Parent-subsidiary relationships have been clarified to a large extent by a series of American
decisions and/or jurisprudence. Thus, if properly used to perform legitimate functions, each
subsidiary and affiliate may maintain its separate juridical personality distinct from its
controlling corporations or stockholders and the liabilities of each corporation will be confined to
those. Otherwise, the parent company is liable for the torts and contracts of the subsidiary,
arising from its separate business to wit:
1. The "instrumentality rule" holds that a parent company will be liable for debts of a
subsidiary where it can be shown that the parent uses the subsidiary as a mere
"instrumentality", "agency" or "adjunct", so that one is the "alter ego" of the other.
 2. If a corporation is controlled by another and is manipulated by the parent for its own
purposes and in its own interest to the prejudice of innocent third parties or the public
welfare, it may be necessary to hold the controlling party responsible (ibid p. 313)
3. If the parent corporation provides the subsidiary with inadequate capital or deals with
the property of the subsidiary as if it were its own; if it gives direct orders to the
employees of the subsidiary and treats it as a mere department of its business; if it
divert its funds by the unlawful declaration of dividends or otherwise abuses its
control, it ceases to enjoy the privilege of separate capacity. (Ibid p. 319)
4. If the parent or holding company undertakes to assume complete control of the
operation of the subsidiary's business, employs a manager to operate its properties
and authorizes him to hire employees on its behalf and discharges them, and to
purchase labor, materials and supplies, subject to the supervision of the directors of
the holding company, it may be held that the separate corporate existence or capacity
by the subsidiaries has been so far disregarded as an independent organization. (Ibid
p. 320)
The parent company has innumerable obligations in relation to its subsidiaries. The SEC
however, has not promulgated guidelines on the same considering that we fall back on American
precedents and jurisprudence applicable to the circumstances of each case.
It is informed, however, that the Bureau of Internal Revenue has its own definition of a "holding
company" under its rules and regulations.
Please be guided accordingly.
Very truly yours,
(SGD.) ROSARIO N. LOPEZ
Director
Corporate and Legal Department

SEC-OGC OPINION NO. 15-11 dated Feb 10, 2011 citing SEC Opinion dated November 28,
1990 to Atty. Rolando P. Navarro citing Ballantine on Corporation Sec. 134.

A holding company has been defined by the Commission in several opinions. A holding
company has been aptly defined as "a corporation organized to hold the stock of another or other
corporations." 2 Its essential feature is that it holds stock. 3 The term "holding company" is
equivalent to a parent corporation, having such an interest in another corporation, or power of
control, that it may elect its directors and influence its management. A parent or holding
company is one that controls another as a subsidiary or affiliate by the power to elect its
management. Affiliates are those concerns that are subject to common control and operated as
part of a system. SEC Opinion dated November 28, 1990 to Atty. Rolando P. Navarro citing
Ballantine on Corporation Sec. 134.
September 30, 1986
Director Armando L. Suratos
Debt Restructing Office
Central Bank of the Philippines
Manila

Sir:

This refers to your letter dated September 24, 1986, informing this Commission that you
received an application to invest in the equity of First Worldwide Development, Inc. under the
Debt to Equity Conversion Program (Central Bank Circular No. 1111 dated August 4, 1986).
cdlex
The primary purpose clause of the articles of incorporation of the applicant corporation states:
"To purchase, subscribe for, invest in, acquire, obtain an interest in, own, hold, pledge,
encumber, hypothecate, create security interest in, assign, deposit, create with respect to, sell,
exchange, exercise any and all rights, powers and privileges pertaining to or otherwise dispose of
and generally deal in with securities every kind and description of any government, state,
territory, district, municipality, or other political or governmental division or subdivision, body
politic, corporation, association, partnership, firm, syndicate, or entity whatsoever located in or
organized under laws of any part of the world, including (without limiting the generality of the
foregoing) stocks, shares, voting trust certificates, bonds, mortgages, warrants, rights, options,
scripts, commercial papers, choses in action, evidences or indebtedness, certificates of interests
or other obligations or other securities of any nature howsoever evidenced for its own account
and (without in any way acting as an investment company, trust company, mutual fund,
investment house, or securities dealer or broker)". (emphasis supplied)
In connection with said application, you would like to request for clarification as to what
category of business activity the aforequoted primary purpose clause is classified.
A careful analysis of the primary purpose disclosed that the corporation is a "building company".
By "holding company" is meant "one which controls another as a subsidiary or affiliate by
the power to elect its management. Affiliates are those concerns which are subject to
common control and operated as part of a system". (Ballantine Law on Corporations, p.
308). In other words, a holding company is one which holds stocks in other companies for
purposes of control rather than for mere investment.
The observation that the corporation is a "holding company" is further supported by the
use of the phrase in the primary purpose clause: . . . "exercise any and all rights, powers,
and privileges pertaining to . . . stocks, shares" . . . . It is worth mentioning that the
rights/powers of an owner of stocks include, as an incident of ownership, the right to vote
and manage the corporation of which he is a stockholder. The aforequoted phrase
therefore may be interpreted that the intention of the corporation is not merely to invest in
securities but to manage their subsidiaries or affiliates. Likewise, the purpose clause clearly
indicates that it will not in any way act as an investment company, trust company, mutual fund,
investment house or securities dealer or broker.
Thus, in the light of the foregoing observations, a corporation having the aforequoted purpose
clause may be treated as a "holding company".
Please be advised accordingly.
Very truly yours,
(SGD.) JULIO A. SULIT, JR.
Chairman