Foreign-ownership issues in events organizing

There was a time when the weddings and events business in the Philippines was robust and thriving, with events-industry trade shows being staged month after month. Events organizing, catering, and other related services expanded exponentially over the last few years.

The pandemic changed everything.

With cities on lockdown all over the world and mass gatherings banned, including weddings and events. While the industry is hurting, the grand pause imposed by the emergency has allowed events organizers to prepare for when business returns, complying with new safety operating guidelines and, more in keeping with our subject, ownership requirements.

In an Opinion issued in 2019, the Securities and Exchange Commission (SEC) clarified that an event organizer providing catering service is considered a retailer. Fundamentally, the SEC defined retail trade as “any act, occupation or calling of habitually selling directly to the general public merchandise, commodities or goods for consumption.” More specifically, the following conditions must be satisfied to qualify as a retailer:

• the seller must be habitually engaged in selling;
• the sale must be direct to the general public; and
• the object of the sale is limited to merchandise, commodities, or goods for consumption.

Events organizing is a service. A coordinator or organizer of an event does not sell merchandise, commodities or goods to the customers; rather, it only renders services to its clients. However, according to the SEC, if the events organizer also provides catering services, it will be classified as a retailer, and therefore subject to the Retail Trade Liberalization Act (RTLA).

An events caterer sells food or goods for consumption. Moreover, in a catering business, every person celebrating an event such as a wedding, anniversary, birthday and baptism, among others, is a potential customer.

It is immaterial whether the catering service is only incidental to its core business of events management; after all, food is a considerable portion of the expense in a catered event and the object of the sale. Thus, while events management per se is not classified as retailing, an events organizer that also acts as a caterer is considered as a retailer.

Since an event organizer providing catering services is classified as a retailer, foreign ownership restrictions apply as retailing is included in the Foreign Investment Negative List (FINL). Under the RTLA and FINL, no foreign equity participation is allowed in the case of a retail trade enterprise with a minimum paid-up capital of less than $2.5m. On the other hand, if the minimum paid-up capital is at least $2.5m, foreign nationals may own up to 100%.

During the pandemic, some catering businesses somehow managed to adjust. Some quickly pivoted to food delivery and maximized online channels for marketing their business. This mode of selling products using e-commerce is the “new normal” as evidenced by the spike in online marketplace activity.

The act of selling online is permissible even if engaging in this channel is not specifically stated in the primary purpose of a retail trade company. In another opinion, the SEC ruled that retailers selling online need not amend their Articles of Incorporation (AoI) to include e-commerce since the use of online channels only constitutes a new mode of carrying out or engaging in the retail trade business. Moreover, the purposes stated in the AoI are not rigid and may, at times, be stretched to cover innovation and unexpected circumstances.

 That said, people remain hopeful that once the health crisis is managed, further easing may be on the horizon. If we go by news reports of how people are even now violating restrictions on mass gatherings during a pandemic, perhaps social gatherings might come back with a vengeance once a vaccine becomes available.

Moreover, as a silver lining for retailers, the House of Representatives approved a bill lowering the capitalization threshold to $200,000 for foreign investors. However, the proposed legislation first filed in March remains under consideration, awaiting the concurrence of the Senate and the approval of the President before it becomes a law.

Until the rules are amended, however, the restriction on foreign equity participation stands and should not be taken lightly. If an events and catering company violates the rules on foreign ownership, it may be penalized by the SEC or Department of Trade and Industry (DTI) with penalties and restrictions on future trading activity. It may also lead to the suspension of its business license, rescission of its engagement contract, and exposure to potential damages for non-performance of services.

Pandemic or otherwise, perhaps such regulatory restrictions and possible consequences are a good incentive for buying Filipino.