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The difference between a sole proprietorship and one-person corporation (OPC)

Choosing a business structure is an integral part of starting your own company. If you are an international investor, you’ll know that the most common ways to start a business are through a sole proprietorship or a one-person corporation.
 
In the article below, we explain the difference between these two business types and what they’re best suited for.
 
What is a sole proprietorship?
 
In this type of ownership, you own and operate the company and its assets in its entirety. You can enjoy all the benefits of the business. However, this also means you are solely responsible for liabilities and debt that may be incurred.
 
The proprietor and their business are considered as one entity and share a single Taxpayer Identification Number (TIN). Foreigners who want to own a sole proprietorship business need a minimum paid capital of $200,000.
 
Creating a sole proprietorship
 
To set up a sole proprietorship in the Philippines, follow these steps:
 

  1. Register a business name at the Department of Trade and Industry (DTI)
  2. Get a Barangay Certificate of Business Registration at your barangay hall
  3. Go to the Mayor’s Office to get a Mayor’s Permit
  4. Register your company with the Bureau of Internal Revenue (BIR)

 
You can find a complete guide for registering your sole proprietorship here.
 
Advantages of a sole proprietorship
 
A sole proprietorship offers the following benefits:
 

  • The process of setting up a sole proprietorship is less complicated compared to other types of ownership;
  • You acquire all the assets and profits generated from the business; and
  • You have complete control over your business. This means you can expand your company in any way you want.

 
Disadvantages of a sole proprietorship
 
Owning a sole proprietorship also comes with a few drawbacks:
 

  • Foreigners are required to dole out a hefty minimum paid capital;
  • You are personally liable for your company’s debts and losses;
  • You shoulder the legal liabilities – like lawsuits – on your own; and
  • Managing a business alone could lead to burnout and exhaustion.

 
What is an OPC?
 
A one-person corporation or OPC is the Philippine version of a limited liability company (LLC). As the name suggests, you don’t need other incorporators to apply for corporation registration in the Philippines. This is typically used by those who get into micro, small, or medium-sized businesses.
 
Foreigners can set up an OPC; however, they still need to abide by the Philippines’ Foreign Investment Negative List. The industry their business is in should also allow full foreign ownership.
 
Creating an OPC
 
To set up an OPC, the following steps must be observed:
 

  1. Check if the company name is available at the Securities and Exchange Commission (SEC) office.
  2. Submit the Articles of Incorporation of the company.
  3. Pay the filing fee, name reservation fee, legal fee, and the surety bond.
  4. Submit the rest of the required documents to the SEC Company Registration and Monitoring Department.
  5. Get the Certificate of Registration and appoint the treasurer, corporate secretary, and other officers within 15 days.
  6. Notify the SEC of the appointment within five days of the decision.

 
Advantages of OPC
 
Owning an OPC offers the following perks:
 

  • OPC ownership is not limited to a natural person. It can also be a trust or an estate;
  • Limited legal liability and responsibilities since there’s a clear separation between your personal assets and those of the company’s;
  • Minimum capital stock is not required; and
  • You can take advantage of standard tax deductions and government incentives.

 
Disadvantages of OPC
 
The downsides of owning an OPC include the following:
 

  • The application process is complex and time-consuming;
  • Natural persons with a license in certain professions (e.g., lawyers, accountants) are not allowed to operate an OPC;
  • Banks, financial institutions, quasi-banks, and other financial entities aren’t allowed to incorporate as an OPC; and
  • There are many limitations imposed on foreigners with an OPC.

 
Sole Proprietorship vs. OPC: Which one should you choose?
 
Both business structures have their respective pros and cons so it’s best to weigh these and see which between these two will benefit you most. If you’re looking for something that is more cost-effective and gives you more freedom to dictate the direction of your business, a sole proprietorship could be best for you. But if you want to scale up your business, an OPC allows you to easily convert to a regular corporation.
 
The most important thing about choosing a company structure is to make sure it aligns with your business goals. Sort out your priorities and figure out the best option for you.
 
Do you still need more guidance on the best business structure to use in the formation of your foreign company? Learn more about starting a business in the Philippines with the experts at FilePino. Get in touch with us today by calling +1.806.553.6552 or by reaching out to us here.