Venture Capital Agreement (Philippines)
VENTURE CAPITAL AGREEMENT
Share Subscription Agreement — Revised Corporation Code (RA 11232) — Securities Regulation Code (RA 8799)
This Venture Capital Agreement ("Agreement") is entered into this [Agreement Date] by and between [Investor Name], of [Investor Address] (the "Investor"), and [Company Name], a corporation duly organized under Philippine law with SEC Registration No. [Company SEC No.], and principal office at [Company Address] (the "Company").
1. SUBSCRIPTION AND INVESTMENT
1.1 The Investor agrees to subscribe for [Shares Subscribed] ([Share Class]) at a subscription price of [Price Per Share] per share, for a total investment of [Total Investment] (the "Investment"), implying a post-money valuation of [Post-Money Valuation].
1.2 The Company shall cause the Board and stockholders to approve the issuance of the subscribed shares and the amendment of the Articles of Incorporation under RA 11232 Section 6 to reflect the rights of the new share class, within 30 days of this Agreement.
1.3 Documentary stamp tax at PHP 1.00 per PHP 200 of the subscription price under Section 175 of the NIRC (RA 8424) shall be paid by the Company within 5 days after the close of the month of share issuance.
2. INVESTOR RIGHTS
2.1 Board Representation. The Investor shall have the right to nominate [Board Seats] director(s) to the Company's Board of Directors under RA 11232 Section 22. The Company shall cause the election of the Investor's nominee(s) at the first stockholders' meeting following closing.
2.2 Anti-Dilution. The subscribed shares carry [Anti-Dilution Type] anti-dilution protection, adjusting the conversion price (for preferred shares) if the Company issues shares at a price below the Investor's subscription price, with standard carve-outs for ESOP shares, convertible note conversions, and Board-approved strategic issuances.
2.3 Liquidation Preference. Upon a Liquidation Event (liquidation, dissolution, merger, or sale of all assets), the Investor shall receive a [Liquidation Preference] liquidation preference per subscribed share before any distribution to ordinary shareholders, in accordance with the terms incorporated into the Articles of Incorporation.
2.4 Information Rights. The Company shall provide the Investor with: (a) audited annual financial statements within 120 days of fiscal year end; (b) unaudited quarterly financials within 45 days of each quarter end; and (c) material event notices within 5 business days of occurrence.
3. PROTECTIVE PROVISIONS
3.1 The following actions require prior written consent of the Investor regardless of Board or stockholder vote: (a) issuance of new shares or securities convertible into shares; (b) amendment of the Articles of Incorporation or By-Laws; (c) merger, consolidation, or sale of all or substantially all assets; (d) declaration or payment of dividends; (e) incurrence of debt above PHP 5,000,000 per transaction; and (f) related-party transactions above PHP 1,000,000.
4. GOVERNING LAW
4.1 This Agreement is governed by Philippine law (RA 11232, RA 8799, RA 386). Disputes shall be resolved by arbitration before the PDRCI under the ADR Act (RA 9285), with venue in Makati City.
IN WITNESS WHEREOF, the parties have signed this Venture Capital Agreement on the date first above written.
[Investor Name]
Investor
[Company Name]
Company (Authorized Officer)
Investor
________________
Signature
Company (Authorized Officer)
________________
Signature
What Is a Venture Capital Agreement (Philippines)?
A Venture Capital Agreement in the Philippines governs the arrangement between the parties and the conditions on which it operates.
A Philippine Venture Capital Agreement typically consists of multiple interlocking documents: a Share Subscription Agreement (the primary investment instrument), a Shareholders Agreement (governing ongoing rights), and an amendment to the Articles of Incorporation and By-Laws of the corporation to reflect new share classes, board seat rights, and protective provisions. The Securities and Exchange Commission (SEC) must approve amendments to the Articles of Incorporation under RA 11232, Section 15, and may require SEC review of the investment transaction if the investor is a foreign entity subject to Foreign Investments Act (FIA, RA 11647) foreign equity limits.
The Bureau of Internal Revenue (BIR) requires documentary stamp tax (DST) under Section 175 of the NIRC (RA 8424) at PHP 1.00 per PHP 200 of the original issue price of the shares subscribed. The investor must also file a Certificate of Registration of Investment with the Bangko Sentral ng Pilipinas (BSP) if the investment is funded by foreign exchange and the investor intends to repatriate dividends and capital gains using bank-purchased foreign exchange, under BSP Circular No. 1039.
A Venture Capital Agreement differs from a simple share subscription in that it includes protective investor rights — such as information rights (quarterly financial statements), pre-emptive rights on new share issuances, tag-along rights (the right to sell proportionately if founders sell their shares), drag-along rights (the right to compel founders to sell in a full company sale), and board representation rights — that are not available to ordinary stockholders under RA 11232 unless expressly provided in the Articles or a Shareholders Agreement.
Foreign venture capital investment in Philippine companies must comply with the Foreign Investments Negative List (FINL) issued under RA 11647, which restricts or limits foreign equity in certain industries (e.g., mass media: 0% foreign equity; telecommunications: 40%; educational institutions: 40%; retail trade: 60%). The Philippine Economic Zone Authority (PEZA) and Board of Investments (BOI) offer fiscal incentive packages that may influence the corporate structure chosen for VC-backed companies.
The legal framework governing the Venture Capital Agreement (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Venture Capital Agreement (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Revised Corporation Code (RA 11232, 2019) sets the foundational requirements.
When Do You Need a Venture Capital Agreement (Philippines)?
A Venture Capital Agreement in the Philippines is needed in the following circumstances.
A Venture Capital Agreement is required when a Philippine startup raises a Series A, Series B, or later equity round from a venture capital fund registered with the SEC under the Investment Company Act (RA 2629) or a foreign VC fund making a Philippine portfolio investment. The agreement sets the share subscription price, anti-dilution terms, and governance rights that protect the fund's investment over the hold period of typically 5–7 years.
A Venture Capital Agreement is needed when the investment involves the creation of a new class of preferred shares in the Philippine corporation with liquidation preference, cumulative dividend rights, or conversion rights that differ from the ordinary shares held by founders. Creating preferred shares requires amendment of the Articles of Incorporation under RA 11232 Section 6 and SEC approval.
A Venture Capital Agreement is required when a foreign venture capital fund invests in a Philippine entity subject to FIA (RA 11647) foreign equity restrictions. The agreement must include representations and warranties from the founders confirming compliance with the applicable FINL restrictions and mechanisms for unwinding or restructuring the investment if SEC or FIA compliance issues arise.
A Venture Capital Agreement is needed when the investment involves a US-based or Singapore-based VC fund investing through a Philippine holding company, requiring coordination between Philippine SEC rules, US securities laws (Regulation D or Regulation S under the Securities Act of 1933), and Singapore MAS requirements under the Securities and Futures Act.
Philippine technology startups registered under PEZA IT Park locators or BOI-registered enterprises use VC Agreements to bring in growth capital while maintaining BOI/PEZA incentive compliance, as ownership structure changes require BOI/PEZA notification under their respective registration rules.
What to Include in Your Venture Capital Agreement (Philippines)
A valid Philippines Venture Capital Agreement must contain the following essential elements.
Parties, SEC Registration, and Board Authorization: Full legal names, SEC registration numbers, and principal addresses of the investor and the corporation. Include a certified Board resolution under RA 11232 Section 22 authorizing the investment transaction, the issuance of new shares, and the amendment of corporate documents.
Shares Subscribed, Price Per Share, and Total Investment: Number of shares, class of shares (ordinary or preferred), subscription price per share, total investment amount in PHP ₱, and the fully diluted post-money valuation implied by the investment. Specify the authorized capital stock available for issuance and, if an increase is needed, the timeline for SEC approval of the Amended Articles of Incorporation.
Investor Rights — Information and Inspection: Right to receive audited annual financial statements (within 120 days of fiscal year end), unaudited quarterly financials (within 45 days of quarter end), annual operating budget, and material event notices. Right to inspect corporate books and records under RA 11232 Section 73.
Anti-Dilution Protection: Define Full Ratchet or Weighted Average anti-dilution adjustment mechanisms that protect the investor from dilution if the corporation issues new shares at a price below the investor's subscription price. Specify carve-outs for employee stock option plan (ESOP) shares, convertible note conversions, and strategic partnership shares.
Board Representation and Protective Provisions: Number of Board seats the investor has the right to nominate under RA 11232 Section 22. List Protective Provisions (matters requiring investor consent regardless of Board vote): issuance of new shares, amendment of Articles, merger or consolidation, sale of all or substantially all assets, declaration of dividends, incurrence of debt above a specified threshold, and related-party transactions above a specified amount.
Tag-Along, Drag-Along, and Right of First Refusal: Tag-along rights allowing the investor to participate in any founder share sale on the same terms. Drag-along rights allowing the investor to compel founders to join a full company sale once the investor approves the transaction terms. Right of first refusal (ROFR) on any proposed transfer of founder shares.
Documentary Stamp Tax and Closing Conditions: Specify DST obligations under NIRC Section 175 and BSP registration requirements for foreign investors. List closing conditions: SEC approval of amended Articles, issuance of stock certificates, completion of due diligence, and receipt of legal opinions from Philippine counsel.
Additional compliance elements for a Venture Capital Agreement (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.
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Frequently Asked Questions
Foreign equity limits under the Foreign Investments Act (RA 11647, 2022) and the Foreign Investments Negative List (FINL) directly affect the structuring of a Philippine Venture Capital Agreement. If the venture capital fund is a foreign entity, its equity shareholding in the Philippine investee company cannot exceed the applicable FINL limit for the company's primary business activity — for example, 40% for telecommunications companies under the Public Service Act (RA 11659, 2022), 0% for mass media, and 60% for retail trade enterprises. SEC Foreign Corporation registration under RA 11232 is required for foreign investors doing business in the Philippines. Philippine VCs and deals involving a foreign VC investing into a 100% Philippine-owned startup in a fully liberalized industry (such as IT-BPM registered under PEZA or BOI as export enterprises) face no foreign equity restrictions under RA 11647.
A liquidation preference in a Philippine Venture Capital Agreement is a provision in the preferred share terms (incorporated into the Articles of Incorporation under RA 11232, Section 6) that grants the investor-preferred shareholder the right to receive a specified multiple of the invested capital before ordinary shareholders receive any distribution in a liquidation, dissolution, or deemed liquidation event (such as a merger, acquisition, or sale of all assets). Philippine venture capital deals commonly use a 1x non-participating liquidation preference — meaning the investor receives back the invested amount first, and then ordinary shareholders share the remaining proceeds. A participating liquidation preference — where the investor receives the 1x preference plus shares in remaining proceeds pro rata — is more investor-favorable and less common in competitive Philippine startup deals. The liquidation preference must be stated in the Articles of Incorporation to be enforceable under RA 11232.
A Venture Capital Agreement itself does not require SEC approval, but the corporate actions it triggers typically do. The issuance of new shares — particularly preferred shares with special rights — requires an amendment to the Articles of Incorporation under RA 11232 Section 15, which must be approved by at least 2/3 of the outstanding capital stock and filed with the SEC accompanied by the Amended Articles, Treasurer's Affidavit, Bank Certificate, and filing fees. The SEC reviews the Amended Articles for compliance with RA 11232 and issues a Certificate of Filing of Amended Articles of Incorporation, typically within 15–30 business days. If the investment involves a foreign investor, the SEC also reviews compliance with the FIA (RA 11647) and FINL. For publicly listed companies, the PSE and SEC require disclosure of material investments under SRC Rule 17.1.
Venture capital investors in Philippine companies have several exit mechanisms: (1) Initial Public Offering (IPO) on the Philippine Stock Exchange (PSE) under PSE Listing Rules and SRC (RA 8799), allowing the investor to sell shares to the public after the lock-up period (typically 180 days post-IPO); (2) Strategic Sale (M&A exit) where the investor uses drag-along rights to compel founders to sell the company to a strategic acquirer; (3) Secondary Share Sale to another financial investor, subject to ROFR and co-sale rights of other shareholders; (4) Share Buyback by the corporation under RA 11232 Section 40 (treasury shares), subject to solvency requirements; and (5) Redemption of preferred shares at a put price, if the preferred share terms in the Articles of Incorporation include redemption provisions under RA 11232 Section 8. Capital gains on share sales by foreign investors may be repatriated using BSP-registered foreign exchange if the original investment was BSP-registered.
An Employee Stock Option Plan (ESOP) in a Philippine startup is a stock option plan authorized under RA 11232 (Revised Corporation Code) and BIR Revenue Regulations No. 1-2021 that grants employees the right to purchase shares at a fixed exercise price after a vesting period. The ESOP requires Board and stockholder approval for the reservation of a specified number of authorized shares (typically 10–20% of the fully diluted capitalization post-VC investment). BIR treats the spread between the fair market value of shares and the exercise price at the date of exercise as compensation income subject to withholding tax under NIRC Section 78. Philippine VC Agreements typically carve out ESOP shares from anti-dilution and pre-emptive right protections and require the investor's consent for any ESOP pool expansion beyond an agreed-upon percentage of the fully diluted cap table.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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