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GUIDE IN OPENING A BUSINESS in the PHILIPPINES

The economy of the Philippines is one of those that is expanding at the quickest rate. According to the World Bank, the Philippines’ economy will continue to be robust, with a growth of 5.8% in 2019 and an estimated 6.1% growth in 2020. In addition, PwC believes that by the year 2050, the Philippines will make one of the largest significant jumps in the rankings of GDP. It shows that investors have several possibilities in the Philippines. This page introduces the Philippines’ business formation procedure. In the following paragraphs, we should discuss the firm forms that Filipino investors like. We will also cover business registration.

Mins to Read: 13 – 17 minutes

Age Bracket: 20-50

When making some meaningful choices, the risk that is most significant for you to incur is, of course, to do nothing. Putting money aside for retirement is a gamble, but doing nothing is an inevitable loss. We need to understand that you are nothing if you do not make an effort.

Structures of Philippine Businesses

Domestic Corporation

The Domestic Corporation is the most often used legal organization for commercial enterprises in the Philippines. Multiple shareholders are required for a domestic company to function. In addition, a shareholder’s liability is limited to the amount of the share capital they have contributed. Most incorporators must live in the Philippines. 5 to 15 directors (or trustees for non-stock corporations) may serve on a company’s board, and each member must own at least one qualifying share of stock. The majority of the trustees or directors must live in the Philippines.

One Person Corporation

A domestic corporation and an OPC, sometimes known as a “One Person Corporation,” are almost interchangeable. The primary distinction is the fact that an OPC only has one stakeholder. One Corporations Corporation (OPC) in the Philippines is envisioned to give an extra-legal structure to enhance the business process in the Philippines at par with other nations and jurisdictions. Legal provisions of One Person Corporation Philippines are contained in Chapter Ill of Title VIll of Republic Act No. 11232 and implemented by SEC Memorandum Circular No. 7 series of 2019.

Sole Proprietorship

There is just one owner in a sole proprietorship. The owner is accountable for all obligations and liabilities of the firm since there is no legal separation. Owners get all company earnings. In contrast to a corporation, the lone owner is personally responsible for any debts and losses made by the firm. Most Philippine firms are sole proprietorships because they are easy to start and run. They are less stable and more prone to economic downturns. It is an excellent approach to starting or growing a company. As with any company, a single proprietorship requires strategy and work.

The Philippine corporate framework for businesses

Domestic and one-person companies both have the following corporate structures:

Shareholders
Directors
Corporate Officers

Shareholders in a Philippine Corporation

-As was already established, the primary distinction between the companies is the number of shareholders. Nevertheless, there are also restrictions on who may become a shareholder.

Type of Corporation	Number of Shareholders	Shareholders (Who)
Domestic Corporation	2 – 15 Members	Partnership, Association, Corporation, Person.
One Person Corporation	1 Member	Board of Trustees, Estate, Person.

Directors of a Philippine Corporation

The company’s shareholders appoint the board of directors. Moreover, directors must comply with the following criteria:

Personnel need to be a natural person and be of legal age
Possess a minimum of one share
Should not have a criminal record with a sentence of more than six years in jail.
The Corporation Code must not have been broken within five years of the election date.

Because directors are required to possess shares, the maximum number of shareholders a Domestic Business may have is 15. Meanwhile, an OPC has the lone shareholder do double duty as both the director and shareholder.

Members of the Philippines’ Corporate Executive Team

The board of directors appoints corporate officers. All Philippine firms must have the following corporate officials.

The corporation’s official signatory is the president. A director’s qualifications include being both a shareholder and a board member. An OPC’s single shareholder also serves as the company’s chief executive officer.

When it comes to money, the company’s treasurer is in command. The OPC president sometimes fills this role. If this occurs, however, the OPC president/treasurer will be required to post a surety bond. The figure is based on the total amount of approved capital stock for the business.

Secretary of State. The secretary of the company is responsible for all corporate paperwork and communication. Assuring legality is essential to many corporate secretarial duties. Corporation’s secretary, then, has to be well-versed in corporate law.

Creating a Philippine Business Registration

Minimum Capital Requirements within the Philippines on Starting a Business

In the Philippines, a company must have at least 5,000 PHP in capital and at least 60% Filipino ownership.

Business Structure	Minimum Capital Requirement
Domestic Corporation (>= 60% Filipino Ownership)	PHP 5,000
One Person Corporation (Filipino-owned)	PHP 5,000
Sole Proprietorship	NONE

Domestic Corporation

Value-added tax (VAT) or monthly other-percentage tax will be charged to a domestic firm in the Philippines monthly and quarterly (OPT or non-VAT). A domestic corporation’s income tax rate is 30% based on its taxable net income.

There can also be additional taxes, including the–

Documentary Stamp Tax (DST) on lease agreements or
The issuance of new shares. tax withholding on income payments, such as 5% on rent.

In the Philippines, failure to pay tax obligations is punishable–

A 25% penalty,
20% interest rates; and
Fines ranging from PHP200 to PHP50,000.

One-Person Corporation

If the director of the OPC, who is also the only shareholder, wants to act as the self-appointed treasurer, they will be required to provide a surety bond equal to the value of their capital stock. Philippine Peso is used for all values.

Authorized Capital Stock	Surety Bond
₱1 to ₱1,000,000	₱1,000,000
₱1,000,000 to ₱2,000,000	₱2,000,000
₱2,000,000 to 3,000,000	₱3,000,000
₱3,000,000 to ₱4,000,000	₱4,000,000
₱4,000,000 to ₱5,000,000	₱5,000,000
₱5,000,000 or more

The surety bond must match the authorized capital stock of OPC.

Philippine Business Registration for Corporations and Sole Proprietorships

1. Name of the Business Registration

All companies in the Philippines must register with the Securities and Exchange Commission (SEC). There would be two (2) weeks for a person to process the Name Registration. Business names for sole proprietorships are registered with the Department of Trade and Industry (DTI). In as little as one day, our consultants can complete DTI certification on their behalf.

2. Local Government Permits

All enterprises are required to submit permit applications to the municipal government where they are registered. These permits consist of the following:

Baranggay Clearance
Zoning Clearance
Business Permit from the Mayor’s Office

Consequently, it must have a legitimate business address. There are constraints on the addresses that may use for the company due to zoning. If the company can function without a physical location, it may also utilize a virtual office address. It is a cost-effective method for acquiring a legitimate company address.

3. Registration Certificate from the Internal Revenue Service

Registration with the Bureau of Internal Revenue is required of all enterprises in order for them to comply with the applicable tax regulations (BIR). Take note that if not registered with the BIR, it will not be able to perform any transactions.

Reporting income for tax purposes and complying with the applicable tax regulations is of utmost significance. If the company does not already have an accountant on staff, the company should consider hiring a professional to handle accounting responsibilities. Hiring a professional accounting firm will guarantee that it continues to comply with all applicable rules and that the enterprise can submit taxes on time. In addition, they will ensure that it stays compliant with all applicable legislation.

4. Register with SSS, PhilHealth, and Pag-IBIG

The owner may contribute as an employer if registered with the organization mentioned above. It is crucial to adhere to employment laws. In order to engage workers for the company, it must first register as an employer with the following governmental bodies:

Philippine Health Insurance Corporation (PhilHealth) health insurance
Home Development Mutual Fund (HDMF or Pag-Ibig Fund) housing loan benefits
Social insurance from the Social Security System (SSS)

Tips on opening a business

To assist the company in launching a small company, we surveyed business executives and entrepreneurs for their best advice. From surrounding themselves with specialists to capitalizing on comparative advantage, many suggestions may assist in launching a small company.

1) Reduce the Minimum Capital Requirement

If a company employs at least fifty people from the Philippines or uses cutting-edge technology, the minimum capital required is one hundred thousand dollars. 5,000 Philippine Pesos (PHP) is the minimum capital required for a company that exports at least 70 percent of its goods (approx. USD 100).

2) Avoid Going It Alone

When launching a company, it needs a support system (and afterward). Having a family member or friend that can bounce ideas off and who will be empathetic while going through the current company start-up crisis is helpful. Find a mentor or apply for a program to help new businesses get off the ground if the company is eligible. For instance, Futurpreneur Canada provides funding, coaching, and other resources to business owners between the ages of 18 and 35. Professional coaching is the most acceptable assistance when you are beginning a company.

3)Seek expert assistance

On the other hand, beginning a company does not need you to be an authority in every field. Hire an accountant or bookkeeper if you’re not one (or both). Hire a lawyer to draft your contract if you’re not an attorney. By attempting to perform things on your own that you are not equipped to do, you will ultimately squander more time and maybe money.

4) Document the Journey

If your procedures are documented, it will be considerably simpler for you to onboard new workers or assign current employees to new positions and duties. Software may manage, visualize, and document a broad range of business processes.

5)Correct the legal and tax issues right away.

A mess is far more complex and costly to clean up after. Does your company need registration? Will you be required to collect PST or GST? Will you have to pay payroll taxes or have workers’ compensation insurance? What impact will your choice of company ownership structure have on your tax situation? Before you launch your company, educate yourself on your legal and tax obligations and conduct business as necessary.

6) Research your topic

Writing a business plan will need extensive study, but that is only the beginning. When launching a firm, you must become an authority on the goods, services, and industry. Before you launch your firm, joining organizations for the linked industry or profession is a good idea.

7) Begin While You Are Still Working

How long can the average person survive without money? Very brief. Additionally, it can take a while before your new company starts turning a profit. Having a job while establishing a company means having money in your pocket throughout the start-up phase.

8) Compose a business plan.

The most significant benefit of creating a business plan before beginning a venture is that it might save you from investing time and resources into a venture that will fail.

9)Verify that the finances are in order.

If you have to, save money. Approach prospective lenders and investors. Create a backup financial strategy. Expecting to launch a firm, go into a bank, and seek funding is unrealistic. Traditional lenders dislike fresh concepts and ventures with a spotty track record.

10) Have passion

You do not have to adore what your company does, and you probably should not either, but you need to be passionate about it. It is crucial that you really and intensely appreciate what you do since you will be investing a lot of time and energy into beginning a company and turning it into a successful venture, whether it be operating fishing charters, making ceramics, or offering financial advice.