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Doing Business in Philippines
 
 
 

General

A business entity is a group of people organised for some profitable or charitable purpose. Business entities include organisations such as corporations, partnerships, charities, trusts, and other forms of organisation. Business entities, just like individual persons, are subject to taxation and must file a tax return.

In Philippines the most common types of businesses are sole proprietorships, partnerships and corporation.

The choice of the form of business or business organisation depends on various factors. In certain business, like banks, the law requires that the business entity must be a corporation. A small business, like your friendly sari-sari store, is better off as a sole proprietorship, although it could also be converted to another form of business if the circumstances require that shift.

Forms of Business Organisation

Sole Proprietorship

Also referred to as “single proprietorship”, a sole proprietorship is the most simple form of business and the easiest to register, through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI). It is owned by an individual who has full control/authority of its own and owns all the assets, as well as personally answers all liabilities or losses. The fact that it is run by the individual means that it is highly flexible and the owner retains absolute control over it.

The problem, however, is that a sole proprietor has unlimited liability. Creditors may proceed not only against the assets and property of the business, but also after the personal properties of the owner. In other words, the law basically treats the business and the owner as one and the same. This uniform treatment also has important tax implications. Partnerships and corporations may lessen their tax liability through a myriad of business expenses and other tax avoidance techniques. These tax deductions may not be applicable to a sole proprietorship. Also, the potential growth and reach of a sole proprietorship pale in comparison with that of a corporation.

Partnership

A partnership consists of two or more persons who bind themselves to contribute money or industry to a common fund, with the intention of dividing the profits among themselves. The most common example of partnerships are professional partnerships, like in the case of law firms and accounting firms. Just like a corporation, it is registered with the Securities and Exchange Commission (SEC).

A partnership, just like a corporation, is a juridical entity, which means that it has a personality distinct and separate from that of its members. A partnership may be general or limited. In a general partnership, the partners have unlimited liability for the debts and obligation of the partnership, pretty much like a sole proprietorship. In a limited partnership, one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. Unlike a corporation, which survives even when a member/stockholder dies or gets out, a partnership is dissolved upon the death of a partner or whenever a partner bolts out.

Corporation

A corporation is a juridical entity established under the Corporation Code and registered with the Securities and Exchange Commission (SEC) with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited to the amount of their share capital. It consists of at least five to 15 incorporators each of whom must hold at least one share and must be registered with the SEC. Minimum paid up capital: P5,000. A corporation can either be stock or non-stock company regardless of nationality. Such company, if 60% Filipino-40% foreign-owned, is considered a Filipino corporation; If more than 40% foreign-owned, it is considered a domestic foreign- owned corporation.

The liability of the shareholders of a corporation is limited to the amount of their capital contribution. In other words, personal assets of stockholders cannot generally be attached to satisfy the corporation’s liabilities, although the responsible members may be held personally liable in certain cases. For instance, the incorporators may be held liable when the doctrine of piercing the corporate veil is applied. The responsible officers may also be held liable with the corporation in certain labour cases, particularly in cases of illegal dismissal.


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