If you are looking for a sign to start your own business, this is most likely the one you are waiting for. But first, you should familiarize yourself with the different business structures here in the Philippines.
The type of business entity you choose is critical since it determines many aspects of starting a business, including costs, taxes, ownership, jurisdiction requirements, and more. To assist you, the following are the five (5) most common business structures in the Philippines:
1. Sole Proprietorship
This is the business structure for you if you want complete control and authority. A sole proprietorship indicates that the company and all its assets are owned by one person. This is an apples-to-apples situation because you get to enjoy all the profits while also suffering all the probable losses.
To legally run a sole proprietorship business in the Philippines, you must register your business name with the Department of Trade and Industry (DTI), secure your business permit from your Local Government Unit (LGU), and then finally register to the Bureau of Internal Affairs (BIR) for your tax compliance.
2. Partnership
Article 1767 of the Philippine Civil Code provides a clear definition of a Partnership: “By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.” In addition, it is vital to remember, however, that the Partnership’s legal identity is distinct from any or all its owners under the Philippine Civil Code. In other words, it is regarded as a legal entity in and of itself.
You can form a General Partnership with your business partners, in which you and your partners share limitless liability for the company’s debts, profits, and duties. Or a Limited Partnership, in which just a few partners have unlimited responsibility, and the remainder are solely liable for their capital contribution.
3. Corporation
If you want to go bigger, then you might want to start your own corporation with a minimum of two (2) and a maximum of fifteen (15) shareholders. Their and your liability is only equal to the number of shares in the business.
Similar to a Partnership, a corporation is treated as a legal entity apart from any or all of its shareholders/stockholders. There are two types of corporations, the first one is the stock corporation with a capital divided into shares that are distributed to investors. The second type is the non-stock corporation which functions without sharing stocks because of its charitable, educational, or cultural purpose.
4. One-Person Corporation
Others may be wondering if it is possible to put up a corporation that is only composed of one person. The answer is yes.
In February 2019, Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (RCC), the One Person Corporation (OPC) was introduced. Only a natural person, trust, or estate can register an OPC. The incorporator, however, shall always be a natural person of legal age. The incorporator can be the trustee, administrator, or any other person exercising fiduciary duties in the case of a trust or an estate.
An OPC creates an organizational structure that keeps the best of both worlds between a sole proprietorship and a corporation i.e., limited liability and complete dominion. Unlike a sole proprietorship, an OPC has a personality distinct from the stockholder and, thus, the stockholder’s liability is limited to the amount of capital invested.
5. Cooperative
Under Article 3 of Republic Act (RA) 9520, also known as the Philippine Cooperative Code of 2008, they defined a cooperative as “an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.”
To put it simply, unlike corporations and partnerships, cooperatives have collective, democratic ownership and are run by an electoral system where all members elect officers through a one-member-one-vote principle.
Cooperatives that seek to register must submit their application with the documentary requirements to the Cooperative Development Authority (CDA) Extension Office.
Similar to a sole proprietorship, to legally run a partnership, a corporation, an OPC, or a cooperative, you will need to register with LGU and BIR as well. However, you must register your company name to the Securities and Exchange Commission (SEC) instead of DTI.
If you have employees, you should also make sure to register as an employer with PhilHealth, Pag-IBIG, and Social Securities Services (SSS) for your employees’ compensation.
You may also have to register with other agencies such as Food and Drugs Administration (FDA), depending on the nature of your business.
In some way, we all want to be our own boss. If you want to take this literally, this is certainly the time to start your own business. However, keep in mind that determining the best business structure for you necessitates a great deal of examining, appraising, and planning. We hope this list is useful!
