SEC-OGC Opinion No. 23-03: Implications of RA 11659 on a Freight Forwarding Company Engaged in Domestic Operations

On 23 February 2023, the Office of the General Counsel (“OGC”) of the Securities and Exchange Commission (“SEC”) issued SEC-OGC Opinion No. 23-03, addressing the implications of Republic Act (“RA”) No. 11659 on a freight forwarding/logistics company engaged in domestic operations. The opinion answered queries on the impact of the amendment to Commonwealth Act No. 146 or the Public Service Act on such companies, particularly, the applicability of the 60-40 rule, the classification of freight forwarders as public utilities based on operation of yellow plated trucks-for-hires, and whether a freight forwarder, by explicitly excluding the business of operating public utility vehicles (“PUV”) in its articles of incorporation, will be allowed to have 100% foreign equity participation. 

Before the effectivity of RA No. 11659, the SEC previously opined, citing Albano vs. Reyes, that a freight forwarder is an operator of a public utility. As public utilities, corporations engaged in the business of freight forwarding were subject to the constitutional requirement that at least 60% of their shareholdings shall be owned by Filipino citizens, with foreign equity participation limited to 40%. However, RA No. 11659 limited the definition of “public utility” to 6 public services which include “public utility vehicles.” This has raised questions regarding the applicability of the 60-40 rule to freight forwarding companies.

A freight forwarding company may be an operator of a public utility. 

Freight forwarders are not public utilities per se, but may be considered as a PUV, thus a public utility, if their operations include carrying and/or transporting domestic cargoes from the place of receipt to the place of destination for a fee, to the public, namely trucks-for-hire, UV express service, public utility busses, public utility jeepneys, tricycles, filcabs, and taxis. In this case, the 40% foreign equity restriction applicable to public utilities shall apply. 

A corporation that operates, manages, or controls PUV is considered a public utility.

A corporation that operates, manages, or controls PUV is considered a public utility. Thus, if a freight forwarding company operates yellow-plated trucks-for-hire, then the 40% foreign equity restriction for public utilities applies. 

As long as a corporation is not a public utility, both in paper and in actual operations, then it is allowed to have 100% foreign equity participation.

As long as a corporation is not a public utility, both in paper and in actual operations, then it is allowed to have 100% foreign equity participation. Thus, if a freight forwarding company amends its Articles of Incorporation to explicitly state the exclusion of the business of operating PUV, it will be allowed to have 100% foreign equity participation provided that it also does not engage in actual operations of a PUV. 

SEC-OGC Opinion No. 23-03 is subject to the IRR of RA No. 11659 and the pertinent agency’s interpretation of PUV as a public utility. 

At the time of the issuance of the opinion, the Implementing Rules and Regulations (“IRR”) of RA 11659 had not yet been issued. Thus, the SEC recommended that the requestor coordinate with the National Economic and Development Authority for further guidance.