For those who have been operating businesses as single-proprietors for some time, the concept of incorporation is
often looked at as a next step in expanding their ventures. This is mainly because switching a business’ legal
structure from a sole proprietorship to a corporation comes with many benefits such as limited liability and risks
for both its owners and its shareholders, as well as increased flexibility for financing and tax planning.
One
particularly popular corporate entity in the Philippines is the so-called “Family Corporation.”
But first,
what is a corporation? How does one set up a business in the Philippines? And what legal forms and requirements do
you need when starting a business?
The nature of a corporation
A corporation, as defined by Philippine law, is an entity
registered with the Securities and Exchange Commission (SEC) that has all of the legal rights and obligations of an
actual person. This means that a corporation has the capacity to act independently similar to individuals and is
thus required to pay taxes, allowed to enter into contracts and legal agreements, and even get bank financing.
Not only
that, but a corporation also has the legal capacity to sue and be sued in its own right, and can even be held
responsible for its own actions, similar to private individuals.
Because a
corporation is a legal entity that is separate and distinct from its owners and shareholders however, the latter 2
cannot be held liable for any misdeeds a corporation might commit. This makes it particularly attractive to
entrepreneurs who want more security.
Other benefits associated with corporations include the
following:
- Corporations can easily increase their capital by issuing stocks to investors.
- Corporations can be passed on to different owners.
- Corporations can exist indefinitely.
- Corporations are managed by a board of directors, which means that decision making isn’t shouldered by a single individual.
Types of corporation
Corporations in the Philippines are usually categorized into 2
types: Stock Corporations and Non-Stock Corporations.
By definition, a Stock Corporation is one whose capital stock is
divided into shares, and is allowed to distribute its profits to its shareholders.
While Stock
Corporations in the Philippines are usually domestic in nature, they can sometimes be fully-owned by foreigners,
provided, of course, that they are in industries that are not restricted in the 11th Philippines Negative Investment
List.
This
means that starting a business in the Philippines can be easy for foreigners.
A Non-Stock
Corporation, on the other hand, is an entity that does not issue any shares of stock to its members. Non-Stock
Corporationsare usually founded and organized for charitable, religious, educational, and cultural purposes.
As mentioned
earlier, one type of corporation in the Philippines is the so-called “family corporation.”
While it may
seem like a distinct category, legal and business experts say there isn’t much that sets “family corporations” apart
from their conventional counterparts — whether domestic or foreign — aside from the fact that their shareholders are
related to each other.
These types of firms function just like any other Stock
Corporation or Non-Stock Corporation, and setting up a family
corporation in the Philippines won’t be any different from their conventional counterparts.
Registering a business
Common documents, legal forms, and requirements needed when
starting a business and registering a corporation include:
- A name verification slip from the SEC
- Filled out and notarized Articles of Incorporation (AI) and By-laws (BL)
- Notarized Treasurer’s Affidavit
- Barangay Clearance
- Business Permit
Can you register an OPC?
A more recent development that entrepreneurs and owners of
single-proprietorships may want to look into, however, are One-Person Corporations or OPCs.
Introduced
to the Philippine corporate landscape in February of 2019, a One-Person Corporation is a business structure that
basically allows a single person to form a corporation by himself. This means that once a company is registered as
an OPC, the business owner also becomes its sole shareholder, acting director, and president.
This
business structure is especially attractive to those who operate micro, small, and medium enterprises (MSMEs).
As OPCs
operate in the same way as most corporations save for the lack of multiple shareholders and directors, it also
enjoys the same benefits as conventional stock corporations.
Want to register a
corporation in the Philippines? FilePino can help you.
FilePino offers a full array of services guaranteed
to help business owners experience a smooth and seamless — not to mention quick and efficient — business
registration process. FilePino can also help with other important business-related tasks.
Starting a
business in the Philippines need not be time-consuming and stressful. Get in touch with us today at +63.917.892.2337 or contact us here to get started.