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Pros & Cons in Setting-Up an OPC in the Philippines

Pros & Cons in Setting-Up an OPC in the Philippines

In February 2019, Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (RCC), introduced several innovations committed to improve the ease of doing business in the country and to support the country’s fast-growing infrastructure and entice foreign investors to do business in the country. One of the major provisions in the RCC was the introduction of a new legal entity, the One Person Corporation (OPC).
 
A One Person Corporation (OPC) is a corporation with a single stockholder. Only a natural person, trust, or an estate may form a One Person Corporation (Section 116, Revised Corporation Code).
 

Pros of a one person corporation in the Philippines:
  • Limited Liability for Business Owners

An OPC is a limited liability corporation in the same manner as a regular domestic corporation, unlike sole proprietorship with the Department of Trade and Industry (DTI) whose liability extends to personal assets of the sole proprietor. In general, the single stockholder is liable only to the extent of its capital contribution upon showing that the OPC is adequately financed with respect to the liabilities of the OPC.
 
Registering your business as an OPC ensures that only the company is liable for its debts and obligations. The owner’s personal assets will be deemed separate and protected from creditors. This protection is known as the “corporate veil”, which separates the actions of an organization from the actions of a shareholder.
 
The introduction of the OPC aims to support the growing sector of micro, small, and medium enterprises (MSMEs) in the Philippines, by allowing a sole owner to register their business as a corporation without needing a minimum number of shareholders.
 

  • Perpetual Existence

Under the OPC Guidelines, the term of existence of an OPC shall be perpetual. In other words, the SEC does not limit the OPC to a definite term of existence under its articles of incorporation.
 
The OPC is an artificial entity separate from its proprietor. Creditors should, therefore, be warned that their claims against the business cannot be claimed against the proprietor.

 
In case of a trust or estate, its term of existence shall be coterminous with the existence of the trust or estate. The OPC under the name of the estate may be dissolved upon proof of partition, such as a court-issued order of partition or an extrajudicial settlement. Similarly, the OPC under the name of the trustee may be dissolved upon proof of termination of the trust.

 

  • Appointment of Nominee and Alternate Nominee

Under the RCC, registering an OPC would require appointment of a nominee and alternate nominee who would take over the management and operation of the OPC as director and president in case of death or incapacity of the single stockholder.
 
Likewise, an OPC is required to appoint a corporate secretary, who must be a resident and citizen of the Philippine; a treasurer, who must be a resident of the Philippines, unless it opted for a self-appointed treasurer by posting a surety bond coverage ranging from P1M to P5M plus depending on authorized capitalization, and such other officers.

 

  • Single Stockholder as Treasurer

The single stockholder shall not be appointed as the Corporate Secretary, but may assume the role of a Treasurer.

 
If the single stockholder assumes the position of the Treasurer, a surety bond is required to be posted and maintained by renewing it every two years or as may be required upon review of the annual submission of the audited financial statements/financial statements. The bond may be canceled upon proof of appointment of another person as the Treasurer.

 

  • No Minimum Capital Requirement

Unlike other business structures, the OPC shall not be required to have a minimum authorized capital stock requirement (Section 117, RCC). A corporation applying for registration with the Securities and Exchange Commission (SEC) carries with it an application for a maximum amount of capitalization that it can issue, otherwise termed as “authorized capital stock”, that could be subscribed and paid-up, either fully or partly, upon the application for registration or during its lifetime.

 

Additionally, the OPC is not required to have a minimum capital stock, whether in terms of authorized, subscribed, or paid-up, except as otherwise provided by special law.

 
The only payments needed to incorporate an OPC are filing fees, name reservation fees, and legal research fees.

 

  • Complete Control of the Business

Unlike a traditional corporation, the director of an OPC has total control over the company. The single stockholder shall be the sole director and president of the OPC (Section 121, RCC). They are not subjected to the scrutiny of shareholders and do not need to seek consensus from the board of directors. All business decisions are at the director’s sole discretion, and all profits are theirs alone.

 

  • Open to Foreign Investors but with exclusions

In general, an OPC is applicable to all – local and foreign investors who want to invest in the Philippines in such allowed areas under foreign investment rules in the Philippines, such as in business process outsourcing (BPO), knowledge process outsourcing (KPO), rendering services, trading goods, or manufacturing. However, the requirement is that it must be within an industry that permits 100% foreign ownership.

 

A full list of prohibited industries can be found on the Foreign Investments Negative List. An OPC is not allowed for banks, non-bank financial institutions, quasi-banks, pre-need, trust, insurance, public and publicly listed companies, non-chartered government-owned and controlled corporations (GOCCs), and professionals for practice of such profession, unless provided under special laws.

 

  • Convertible to regular corporation and vice-versa

An OPC may be converted into an ordinary stock corporation after due notice to the Commission of such facts and circumstances leading to the conversion, and compliance with all other requirements for stock corporations under this Code and applicable rules.
 

When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for conversion into an OPC, subject to the submission of such documents as the Commission may require(Section 131, RCC).

 

  • Now with a Lower Tax Rate under the CREATE Act

Republic Act No. 11534, also known as the “Corporate Recovery and Tax Incentives for Enterprises” or the CREATE Act, brought with it some favorable changes regarding the implementation of tax rates. Effective as of July 1, 2020, the Regular Corporate Income Tax or RCIT for domestic corporations with the following criteria: a net taxable income not exceeding 5 million pesos, and with total assets that are not exceeding 100 million pesos, shall have a reduced tax rate from the previous 30% to the present 20%. As for other domestic corporations without the previous criteria and resident foreign corporations, the tax rate will be reduced from the previous 30% to the present 25%.
 
The implementation of the Minimum Corporate Income Tax or MCIT shall be applicable under the following factors: if the taxable income of a corporation is negative, or if the MCIT is higher than 30% RCIT. The MCIT tax rate shall also be reduced under the CREATE Act. Effective July 1, 2020 to June 23, 2023, the MCIT rate shall be lessened from the previous 2% to the present 1% of gross income.

With the lower tax rates being implemented, setting up an OPC in the Philippines is now more appealing to those who want to venture out in building this kind of corporation.
 
 

Cons of a one person corporation in the Philippines:
  • Limited to Natural Persons, Trusts, or Estates

The RCC prohibits professionals from turning their practice into a corporation. This is to protect the fields of medicine, law, and other regulated professions from corporate interests and to ensure that patient and client welfare comes first.

 

The following are also prohibited from setting up an OPC:

  1. Banks, non-bank financial institutions, quasi-banks;
  2. Pre-need, trust, insurance companies;
  3. Public and publicly-listed companies;
  4. Non-chartered government-owned-and-controlled corporations (GOCCs); and
  5. A natural person who is licensed to exercise a profession, except as otherwise provided under special laws.

 

  • OPC is included in Name

You are required to indicate that the company is a one person company by adding the words “OPC” either at the end of the company name or below it. There is a slightly lower impression that the organization is kept running by one and only person. When you initiate your business with a number of shareholders, the administration will not be dedicated to only one person, thus offering an overall better impression to customers.

 

  • One Person Management

The shareholder is only one, and that said person makes all the decisions. On the off chance that he is insightful, it is excellent; however, in some cases, cross-checking is required for business development. The company’s success and growth are all dependent on one person’s decision-making ability.

 

If you want help in the process of registering your business in the Philippines, you can get in touch with us today by calling +1.806.553.6552 or by reaching out to us at FilePino.