The Philippines is a country that’s constantly moving forward, thanks to a highly educated population and a vibrant, business-friendly environment that attracts investors from all over the world.
With that said, starting a business in the Philippines brings many advantages to the table, whether you’re a first-time entrepreneur or a seasoned business owner. In addition to the numerous offers and incentives provided to entrepreneurs, the Philippines also boasts a well-developed economic and business infrastructure, along with a highly-skilled workforce.
Those planning to start a business in the Philippines can choose to set up a variety of business structures or entities, from sole proprietorships to corporations, each with its own advantages and disadvantages. On this page, we’ll focus on one of those structures: the partnership business.
What is a Partnership Business?
A partnership business or company is a business structure which constitutes a legal agreement between two or more individuals (or even corporations), known as partners, to collectively contribute financial, material, and labor assets into a shared pool for the business establishment and operations, distributing and sharing the profits and losses among them.
By contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of devising the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession (Art. 1767 of Civil Code).
Next to a corporation, a partnership is one of the most preferred business entities in the Philippines. Partnership owners have the option to choose a structure with either limited or unlimited liabilities. Establishing a larger partnership in the Philippines is also an option, provided owners register their interests with the Securities and Exchange Commission (SEC).
While corporations (domestic, foreign, OPC) are covered by the Revised Corporation Code of the Philippines, partnerships are covered by the Civil Code of the Philippines.
Key Features of a Partnership Business in the Philippines
Understanding the key features or aspects of a partnership business reveals how its unique operational structure, legal requirements, and liability structures differ from other business structures, particularly corporations.
Immediate Juridical Status
A partnership has a juridical personality separate and distinct from that of each of the partners (Art. 1768). A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated (Art. 1784).
Personal Liabilities and Accountabilities
General partners are jointly or severally liable for the partnerships’ debt and obligations, which also means that each is personally responsible for the entire amount of the liabilities, not just a portion. On the other hand, limited partners usually have liabilities restricted to their capital contributions.
Transfer of Partnership Interest
In corporations, transfers of shares result in transferees becoming shareholders without explicit approval by other shareholders. In partnerships, however, transfers require the consent of all the partners, who have the right to accept or reject them, unless otherwise stipulated in the partnership agreement.
Profit and Loss Sharing
In partnerships, profits and losses are shared among the partners according to the stipulations in the partnership agreements. The sharing ratios usually reflect the partners’ capital contributions, roles, and other agreed-upon terms. If not specified, the profits and losses are distributed or shared equally.
Shared Resources (Capital, Labor, Skills, etc.)
Partners collectively pool resources for the partnership business. These often include capital and financial contributions, assets, skills and expertise, and professional networks, all which can be leveraged for shared benefits.
Suitability for Professionals
Unlike corporations, a partnership between two or more professionals can be established specifically for practicing a profession, hence particularly suited for groups of professionals in similar fields, where each partner plays an active role in running the business. Partnerships are common among medical professionals, lawyers, accountants, consultants, financial experts, and architects.
Types of Partnership Businesses
Article 1776 of the Civil Code provides that as to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited.
General Partnership
In a general partnership, each partner represents the business or company with equal rights and responsibilities. General partners can participate equally in the control of business, decision making, and management activities. Given these, they share the same responsibility for the debts and liabilities incurred by the business.
Limited Partnership
General and limited partners form a limited partnership, however with varying responsibilities and liabilities. While the general partner has full rights and responsibilities over all aspects of the business, limited partners have the limited control and participation, i.e., usually based on the investment. In most cases, they only invest, take a profit share, and do not participate in decision making and management.
Other terms, such as industrial (one who furnishes labor) and capitalist (one who infuses capita) partners. Between these partners, industrial partners are not liable for losses. Capitalist partners are usually liable only to the extent of their contributions.
Requirements for a Partnership Business in the Philippines
Below are the requirements for registering a partnership business in the Philippines:
Partnership Agreement
At least two (2) people enter into a legal agreement to form a partnership. Such agreement outlines the terms and conditions governing their business relationship, capital contributions, profit-sharing, management of responsibilities, and decision-making, among others.
Capitalization
Partners getting into an agreement must contribute resources to the partnership business, whether financial or capital contributions, equipment and other tangible properties, skills and expertise, services, and so on. From the capitalization and all other contributions, the partners divide the profit among themselves, however they see fit.
SEC Registration
Partnerships must register with the Securities and Exchange Commission (SEC). Endorsements or clearances from other government agencies, if applicable based on the nature or line of business, must also be secured. For limited partnerships, the word “Limited” or “Ltd.” should form part of the partnership name.
Documentary Requirements
As mentioned earlier, a partnership business must be duly registered with the Securities and Exchange Commission (SEC) and other government regulatory bodies. For SEC registration, below are the usual requirements;
- SEC Registration Cover Sheet
- Name of the Partnership and Name Verification Slip
- Articles of Partnership (AP)
- Purpose of the Partnership
- Join Affidavit (if not stated in the Articles of Partnership)
- Certificate of Bank Deposit
- Principal Office Address
- Details of the Partners (names, birthdates, addresses, citizenships, contact numbers, etc.)
- Tax Identification Numbers (TINs)
- Capital Contributions
Depending on circumstances, additional requirements might be needed, such as:
- FIA Form – 105 for partnerships that have a foreign national as one of the partners
- Clearance or endorsement from other government agencies
Compliance with Tax and Regulatory Requirements
Partnerships must comply with tax laws, regulations, and reporting requirements imposed by the Bureau of Internal Revenue (BIR), other regulatory agencies, and local government units (LGUs). They are also subject to income tax, value-added tax (VAT), and other taxes applicable to their business activities. If employees are hired, then employer registrations with statutory agencies, i.e., SSS, PhilHealth, and Pag-IBIG Fund, must also be processed.
How to Register a Partnership Business in the Philippines
Registering a partnership business in the Philippines shares the same process with a corporation. It starts with the SEC registration, then with other government regulatory bodies, local government units (LGUs), and statutory agencies.
1. Register with the Securities and Exchange Commission (SEC).
Registrations of partnerships and corporations with the Securities and Exchange Commission (SEC) are now made easy and convenient with the SEC Electronic Simplified Processing of Application for Registration of Company (eSPARC). For partnerships, the process involves name verification and reservation, uploading of signed and notarized documents, payment of fees, and submission of document hard copies. After the successful registration, the company is issued a Certificate of Registration or Certificate of Partnership. Read more about SEC Registration here.
2. Secure a Barangay (District) Clearance.
All businesses in the Philippines need to secure a Barangay Clearance, which can be obtained in the local barangay office that serves your business’ location. The Barangay Clearance serves as proof that your business complies with all standards and regulations established by your local barangay.
3. Process Employer Registrations (SSS, PhilHealth, Pag-IBIG Fund).
All businesses that hire employees are required by law to register with the statutory agencies (i.e., SSS, PhilHealth, and Pag-IBIG Fund). The employer registrations ensure the lawful remittance of the employee-members’ social security and pension fund contributions. These can already be processed with the SEC-issued certificate, Barangay Clearance, and other documentary requirements.
4. Obtain a Business or Mayor’s Permit.
After processing the SEC registration, Barangay Clearance, and statutory employer registrations, the partnership business may already be registered with the City or Municipal Business Permit and Licensing Office (BPLO) for issuance of the Mayor’s Permit or Business Permit, which proves payment of local business taxes and compliance with the city or municipal ordinances for fire safety, security, health, and sanitation. Read more about Business Permit Processing here.
5. Register with the Bureau of Internal Revenue (BIR).
Simultaneously with the processing of the Mayor’s Permit, the registration with the Bureau of Internal Revenue (BIR) may already be processed with the Revenue District Office (RDO) having jurisdiction over the principal business address. The registration provides the partnership business an authority to use a separate Tax Identification Number (TIN), issue official receipts and invoices, and register the books of accounts. Read more about BIR Registration here.
Examples of Partnership Businesses in the Philippines
Here are a few examples of successful partnership businesses in the Philippines, each making a significant impact in their respective business fields across the country and abroad:
The Bistro Group
Founded in 1997 by four business partners, The Bistro Group began with a single restaurant and has grown into a large conglomerate with over 100 restaurants and franchises both in the Philippines and abroad.
Tala
Launched in 2011 by Shivani Siroya and Roseanne Carreon, Tala is a fast-growing financial technology startup that provides convenient online loans to underserved communities in the Philippines, having secured over $200 million in funding.
Kumu
Founded in 2018 by Roland Ros and Rexy Dorado, Kumu is a social media platform that has leveraged its livestream technologies and expanded into various core specialties with its kumu Social TV, kumu Gaming, and Shopkumu e-commerce.
ExpressPay
Established in 2011 by four franchise partners, Expresspay has emerged as one of the leaders in the payment services franchising sector. It has expanded to nearly 800 franchise branches that offer convenient and efficient payment solutions across the country.
Bo’s Coffee
Founded by Steve and Carmen Benitez, Bo’s Coffee started as a humble coffee cart in 1996 and has since transformed into a thriving coffee chain with over 100 branches across the Philippines.
… and you might just need our assistance.
FilePino is a one-stop-shop business consulting firm trusted by thousands of clients for their business formation and post-formation needs. We offer complete packages of business registration and business permit renewal services. With its sister companies and brands, we guarantee fast, efficient, and seamless fulfillment of your business needs.
Ready to register your partnership business in the Philippines? Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.
One Response
Its helps me alot