TODAY, BUSINESS transactions can be initiated, negotiated and consummated through the Internet regardless of the location of the parties.

Geographical boundaries have minimal effect on cyberspace. The Net can go wherever there are facilities that can transmit and receive its electronic impulses.

Although face-to-face meetings are ideal, time and distance constraints justify resort to this otherwise impersonal way of doing business.

The benefits of that convenience, however, cannot be enjoyed at the expense of the rules of the country where any part of the business may take place.

Compliance with those regulations is critical because it could adversely affect the parties? ability to perform their contractual obligations and, more importantly, to remit or receive the monetary rewards for their efforts.

Nothing can be frustrating to a businessman than to go through all the trouble and expense of putting up a business only to find out later that he cannot enjoy its returns for failure to comply with some legal requirement on doing business.

It was this problem that was sought to be avoided by a South Korean company engaged in the operation of Internet-based games that wanted to extend its activities to our country.

Presence

The corporation holds a license ?to offer various interactive games accessible through the Internet that are available and accessible to interested players anywhere in the world, including the Philippines.?

Its business strategy involves the installation of game servers in the country that, with the use of a local company?s facilities, will be linked to the Internet.

The company inquired from the Securities and Exchange Commission if the installation of the servers constituted ?doing business in the Philippines? that required it to get a license from the SEC before operation.

In its reply, the SEC cited the Foreign Investment Act of 1991 which defined ?doing business,? among others, as ?any other act or acts that imply a continuity of commercial dealings or arrangements ? incident to and in progressive prosecution of commercial gain.?

With this provision as benchmark, the Supreme Court laid down two tests to determine if a foreign company falls within the definition, namely: It maintains in the Philippines the body or substance of the business for which it was organized, and it is engaged in activities that imply a continuity of commercial dealings and arrangements.

Server

According to the SEC, a game server is ?a remotely or locally run server used by game clients to play multiplayer video games? that, when connected to the Internet, can read and transmit vast amounts of data as fast as the game is played.

Since these servers are necessary and indispensable to the business, they meet the first test?the company maintains a ?body or substance? in the Philippines.

The fact that no physical act is involved in the installation of the servers beyond leasing space for them does not diminish their value as a significant component of the company?s business.

The SEC further explained that the second test was likewise met because the servers would be in continuous operation while being physically present in the Philippines.

The continued presence can be construed as engagement in ?activities which necessarily imply a continuity of commercial dealings.?

The SEC also pointed out that the purchase of games online was a commercial transaction that would create earnings and direct profits for the company using servers located in the Philippines.

Under these circumstances, the SEC concluded that the company could not install the game servers without first obtaining a license to do business here.

Protection

The SEC?s ruling on this matter is instructive for members of Generation Y who surf the Internet for business opportunities that allow them to make money from the comforts of their homes using the worldwide web.

There are reports that some foreign companies with extensive Internet-based businesses in different parts of the world are sending feelers to computer-savvy Filipinos to enter into tie-ups or joint venture arrangements for the expansion of their activities in the Philippines.

The business opportunities offered, which often do not require any capital contribution, include interactive games, solicitation of product orders, collaborative software development, research data collection and storage and a myriad of other services that use the unique features of the Internet.

If the business proposition meets, directly or indirectly, the two tests on ?doing business in the Philippines? mentioned, it is advisable for the Filipino counterpart to ask (or better still, insist) that the proper license to operate be secured first before he invests time, money or effort on the proposed activity.

By going through the license procedure, he can put a name and a face on the company or people he?s dealing with, rather than a website or e-mail address that cannot be traced if things get awry.

What?s more, the securities deposit foreign companies that want to do business in the country are required to put up can be tapped in case the company reneges on its contractual obligations to the local counterpart.

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