Filipino Business Partners

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Having Filipino business partners is probably one of the more scary propositions for many foreigners who want to open up a company here in The Philippines. Personally, from my own experiences here over the past few years, I think that is the wrong attitude to take. I do counsel extreme caution though.

As an introduction to the topic, let me explain that in the case of almost all business enterprises, foreign ownership is limited. In the case of SEC registered corporations, except for a few exclusions, foreign ownership is limited at 40%. This is the law and there is no way of getting around it.

We have all heard many  stories propagated on expat forums and Facebook groups that tell tales of woe where would be businessmen have lost everything, including abrupt forced deportation, when things have gone sideways. This just does not have to be the case and sadly, more often than not, the foreigner themselves are to blame for just not doing things right.

I, like many small business owners, tend to be real wary of any partners as a general rule, and typically lean towards independence. I admit that for me this is based at least partially on ego. I want the control to do things my way, and since it is usually me that will be putting in the time and money, I simply do not want to have to answer to anyone. If I succeed, it is my doing, and if I fail, well, it is on me. That is a formula that I am used to and can work with.  When I decided to get into business here, I had to check some of that ego at the door, simply because I had no choice.

Let me share with you some of the options you may consider when deciding on your Filipino business partners.

1. Wife and Family – This is a double edged sword. If you have the right family, then what you will gain is trustworthiness and you just cannot put a value on that. I know that there will be some guys who read this that kick back and say you cannot trust family, but my simple response to that would be something like, “if you cannot trust your wife, what are you doing with here in the first place”. Granted, your wife may totally trustworthy, but not necessarily her family, and if that is the case then you might want to look at #3. The one real important trap that is rarely thought about since most foreigners are older than their Filipino spouses, is the unlikely event that she dies before him. If this does happen, there is a good chance that the foreigner will end up with the spouse’s families as his new Filipino partners, and if that is a situation you want to avoid, then you should have a clearly set out and valid legal agreement that will layout a buyout process, which should include a valuation of the stock to be sold to a buyer that you chose. And yes, if their are heirs that by law are entitled to a share of her assets, they must receive fair compensation. Best to have a fair valuation per-determined so the wife’s family do not try and extort and unreasonable sum
2. Dummies – This refers to Filipino business partners who really are not partners at all except, in name. This is illegal, illegal, illegal!!!. Many  foreigners do try this and even if they do not get caught, thrown in jail and deported, they leave themselves wide open to extortion. If these “dummies” want, and it happens a lot, they can threaten to go to the authorities and have you charged, unless you pay them money. though they too are breaking the law, they know that in all likelihood they would be granted leniency to give evidence against the real target,,,, the foreigner. The common rule of thumb, is that any and all shareholders must receive benefit form their shareholding. Share assignments, Special power of Attorney, etc will just be evidence that dummies are being used in an attempt to circumvent the law.
3. Strategic Filipino Partners – This option is probably one of the most under-utilized option of them all and also can be a double edged sword. The benefits can be real tangible. The Philippines business community and bureaucracy is a run like an old boys club, which a foreigner honestly has little chance of becoming part of. As well, foreigners rarely are able to fully understand the intricacies of the Filipino culture. Though a Filipina wife may be able to help in this, most do not understand how it works in a business sense, unless she herself is well placed in the business community. In short, a strategic Filipino partner can not only open doors for your company, they can also steer you away from situations and dealing which can be dangerous to a foreigner. Now the other side of that double edged blade. When you bring strategic Filipino business partners into the mix, you are doing so because they have clout. If they are not honrable and trustworthy, or you chose not to be with them, if they turn on you, so does that clout.

So how have we at the PhilX Group navigated the requirements for Filipino business partners? First off I, as the foreigner in the mix, got real lucky with both my wife, but also her family. My wife plays an active role in the company, is extremely smart and hardworking. She is also the most trustworthy person I have ever met. She also has several family members who got involved at different stages of our corporate development and have proven themselves as not only responsible shareholders but actively involved in key managerial positions. We also have some other minority but extremely important and contributory strategic partners who have helped us make inroads with the local  business community. They obtain a clear financial benefit from their partnership with us, and for us, doors are open that used to be closed shut.

Gordon Mckissock

THE PHILX GROUP

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