HomeBusiness contracts

Learn more about Business Contracts in Philippines

Our collection of Business Contracts governed by Philippine law is intended for use by Filipino nationals and international companies wishing to invest or export to the Philippines. Philippines adopted English as its legal language and principal trade language. Nonetheless, there are legal and cultural differences, and it is usually advised to seek local legal guidance. While it is true that Philippines adopted the English legal system and that the principles and rules of common law as known in England prevail to a large extent in Philippines, several adaptations in the law and an Philippino business culture necessitate caution when entering into a contract for sale to ensure protection in the event of breach.

Table of contents

What are the business contracts laws in Philippines?

The Philippine legal system is a hybrid of civil and common law. In business law, the civil law system is more widely utilized.

The Foreign Investments Act of 1991 (as modified) is the fundamental legislation governing foreign investment in the Philippines. Foreign investors are permitted to make up to 100 percent foreign equity investments in domestic business operations under this law, except in businesses classified on the Foreign Investment Negative List (FINL).

The FINL activities are restricted by the mandate of:

➤ The Declaration of Independence
➤ here are specific laws
➤ National security, defense, or health and moral reasons
➤ Small and medium-sized businesses are protected

These regions or activities include, but are not limited to:

➤ SEC-regulated investment firms may hold up to 60% foreign equity
➤ Foreign equity can account for up to 40% of private land ownership
➤ Public utility operation and management: up to 40% foreign equity
➤ Gambling (with few exceptions): up to 40% foreign stock
➤ Advertising: up to 30% foreign equity
➤ Except for recording, there is no foreign equity in the mass media
➤ Retail trade firms having less than US$2.5 million in paid-up capital: no foreign equity. (As of August 1, 2012, one US dollar equaled approximately EUR0.8)

What are the essentials Business Contracts?

The following are some of the most common contracts used by companies conducting business in Malaysia:

Non-Disclosure Contract (NDA): A lot of the information you have as a firm is covert and highly sensitive. By requiring employees/clients to sign an NDA prior to interviews or discussions, you can ensure that confidential information does not escape the building/meeting room.

Shareholders Agreement: Explains shareholders’ rights and duties as well as how the firm should be run.

Share Purchase Agreement: Used to sell a defined number of shares of a target firm to a buyer for a set price.

Partnership Agreement: Use this agreement to define all of your full-time or salaried employees’ rights and responsibilities.

Consulting Agreement: Specifies the services that a consultant or independent contractor will provide for a customer and guarantees that he is compensated.

Loan Agreement: When a lender lends money to a borrower in exchange for repayment plus interest, a Loan Agreement is utilized.

Minutes of Meeting: Assists you in keeping track of all significant resolutions at shareholder or directors meetings.

What are the differences between agreement and contract?

One of the most common mistakes business owners and freelancers make is using the terms “contract” and “agreement” interchangeably.

Although the two have similarities, they are not the same thing.

Agreements are the prelude to a contract. It covers what is done to ensure that the contract meets the needs of both parties.

One of the major purposes of this stage is to prevent mutual mistakes, which happens when both parties believe they agree to a contract clause, only to find out that one or both of them are wrong.

The key to agreements and contracts is that all parties involved must agree on all written points, particularly the timetable, deliverables, and other actions in place.

This mutual acceptance can make or break the transaction and pave the way for a contract dispute.

The main distinction between contracts and agreements is that contracts are legally binding. As a result, if a party fails to meet all of the expectations, they can be held accountable for their actions.

Aside from that, agreements do not have to be in writing. Contracts, on the other hand, are mostly written, with the exception of a few types.

How to draft a Business Contracts?

You’ve probably lost count of the amount of contracts you’ve signed over the years. But now you’re wondering how you’re going to make one.

You must first understand the foundations of a company contract before you can write one. This includes the following:

➤ The date the contract was written
➤ The contract's expiration date
➤ Damages for breach of contract
➤ The sum that each party must pay, as well as the time frame
➤ Every person or party involved's name
➤ Signatures in the signature section

You simply cannot rely on oral contracts if you wish to include the law and form binding agreements. As a result, it stands to reason that the first step should be to write down what you have agreed upon with the other side.

Clearly state the conditions of the agreements while avoiding conflicts and ambiguity.

Use a language that all parties involved can comprehend when writing your contract. This ensures that everyone understands what they are signing, as well as every single term in the contract.

The therms and obligations of each party to the business contract must be clearly stated, with little to no room for interpretation. A contract dispute can thus be avoided. Don’t forget to provide your payment information.

For example, if you wish to be paid at the end of each month, do not just write “end of each month.” Rather, write “every 29th.”

It is also critical to specify how each party should make payments. This could be a monthly or one-time payment plan. Many contracts also include provisions for late or delayed payments.

If you decide to make changes to the contract, make a formal addendum rather than relying on oral agreements.

What are the challenges Philippines businesses face?

The Exporting Challenge :

Any company attempting to expand its market will confront numerous challenges. Make sure you comprehend international commerce restrictions before deciding to develop internationally. To maintain optimal business performance, find the proper person to assist you in navigating international legislation, foreign currency, taxation, and compliance.

To go to the cloud or not to go to the cloud :

Cloud accounting software created quite a stir at the beginning of the decade, and it is undoubtedly here to stay. Taking your financial and accounting data to the cloud provides many advantages, including having access to your financial information on many devices from anywhere, at any time.

Whether you choose cloud-based applications or not, the most important thing is that your solution meets your present demands. Nonetheless, it would be a mistake to ignore the usefulness of the market’s existing cloud-based solutions. (Here are a few ways cloud accounting might boost financial efficiency.)

Tax complication :

When it comes to comprehending tax and accounting requirements, any entrepreneur who has set up their own start-up business faces a steep learning curve. Many circumstances, such as political volatility and market and technological advancements, could have an impact on these rules.

It only makes sense to hire a tax consultant to help you through the complex tax laws; otherwise, you risk paying fines or penalties for noncompliance.

What are dispute resolution and arbitration?

Arbitration has always been acknowledged as a frequent means of dispute resolution in the Philippines, as provided in Philippine Civil Code Articles 2028 to 2046. However, until the 1920s, the Philippine courts were not always supportive of the arbitration system, as evidenced by a number of cases in which arbitration agreements between parties were declared unlawful by the Philippine courts.

The Philippines became more open to the concept of arbitration in the 1950s, and in 1953, the Congress of the Philippines passed Republic Act (R.A.) No. 876 (the “Arbitration Act”). Later, on June 10, 1958, the Philippines signed the New York Convention, which was approved on July 6, 1967, with the goal of promoting the development of basic arbitration legislation.
However, the aforesaid Arbitration Law contains various ambiguities, such as failing to specify the terms of the arbitration method. It also does not define how to enforce international arbitral rulings and does not conform with the June 21, 1985 United Nations Commission on International Trade Model Law on International Arbitration (the “UNCITRAL Model Law”).

The Congress passed R.A. No. 9285 (the “Alternative Dispute Resolution Act of 2004,” or the “ADR Act”), which was based on the UNCITRAL Model Law, almost 50 years after the Arbitration Act was passed. The ADR Act, which amends and supplements the Arbitration Act, is at the heart of the Philippine arbitration system.

Although the ADR Act explicitly provides for the adoption of the UNCITRAL Model Law, it refers to the original 1985 version. Since the UNCITRAL Model Law was amended in 2006, it is necessary for the ADR Act to be amended to incorporate the amendments to the UNCITRAL Model Law in 2006. In 2017, the Office for Alternative Dispute Resolution (“OADR”)[9], an agency under the Department of Justice, was tasked to propose amendments to the ADR. Several proposals have been made, but have not yet been enacted into law

Share information

Ready to get started ?

Avoid any risks and get sound advice for igniting growth of your business

Request a quote