Next, the Court must determine if petitioner is in fact a cottage industryentitled to claim the exemption under LLDA Resolution No. 41, Series of 1997.
That jewelry-making is one of the activities considered as a cottage industry is undeniable. The laws bear this out. However, based on these same laws, the nature of the activity is only one of several factors to be considered in determining whether the same is a cottage industry.
In view of the emphasis in law after law on the capitalization or asset requirements, it is crystal clear that the same is a defining element in determining if an enterprise is a cottage industry.
Petitioner argues that its assets amount to only P312,500.00, representing its paid-up capital at the time of its SEC registration. The law then in force was R.A. No. 6977, which, to recapitulate, states:
SEC. 3. Small and Medium Enterprises as Beneficiaries. – “Small and medium enterprise” shall be defined as any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant, and equipment are situated, must have value falling under the following categories:
micro : less than P50,000
cottage: P50,001 – P500,000
small : P500,001 – P5,000,000
medium: P5,000,001 – P20,000,000
In a generic sense, all enterprises with total assets of Five million pesos (P5,000,000) and below shall be called small enterprises.
Accordingly, it should be considered as a cottage industry, petitioner insists.
However, petitioner’s contention that its total assets amounts only to P312,500.00 is misleading.
The P312,500.00 represents the total amount of the capital stock already subscribed and paid up by the company’s stockholders. It does not, however, represent the totality of its assets, even at the time of its registration. By the expert opinion of petitioner’s own consultant, independent CPA Maximiano P. Sorongon, Jr., it does not mean that the paid-up capital is the only source of funds of the corporation for it to support its recurring operational requirements, as well as its increased financial requirements later on, as and when the business grows and expands.
In other words, its paid-up capital is not the only asset of the company. Under R.A. No. 6977, the term total assets was understood to mean “inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant, and equipment are situated.”
Assets consist of property of all kinds, real and personal, tangible and intangible, including, inter alia, for certain purposes, patents and causes of action which belong to any person, including a corporation and the estate of a decedent. It is the entire property of a person, association, corporation, or estate that is applicable or subject to the payment of his, her, or its debts.
Consider these details as found by the Board of Investments and set forth in a Memorandum dated June 8, 1999 addressed to the undersecretary of the DENR, listing the basic information of petitioner as follows:
Name : Sterling Selections Corporation
Address : 55-A, 11th St., NewManila,Quezon City
Business Activity : Producer of gift items made of silver
Chairman & Managing Director: Asuncion Maria S. de Faustmann
SEC Registration : A 1996-10845 dated December 2, 1996
BOI Accreditation : 98-003 dated August 13, 1998 under R.A. 8502
BETP Accreditation : 98-0010 dated July 17, 1998 under R.A. 7844
No. of Employees : 189 (Direct Labor; Salaries & Allowances –
Value of Export Sales : P19,732,692.00
Total Sales : P37,160,340.00 (based on 1998 ITR)
The same figures are reflected in petitioner’s own income statement. Petitioner cannot insist on using merely its paid-up capital as basis to determine its assets. The law speaks of total assets. Petitioner’s own evidence, i.e., balance sheets prepared by CPAs it commissioned itself, shows that it has assets other than its paid-up capital. According to the Consolidated Balance Sheet presented by petitioner, it had assets amounting to P4,628,900.80 by the end of 1998, and P1,746,328.17 by the end of 1997. Obviously, these amounts are over the maximum prescribed by law for cottage industries.
Thus, the conclusion is that petitioner is not a cottage industry and, hence, is not exempted from the requirement to secure an LLDA clearance.