Everything you need to know about business structures

Everything you need to know about business structures

There are currently three basic business ownership structures that an entrepreneur can adopt when setting up a business in the Philippines:

  1. Single Proprietorship
  2. Partnership
  3. Corporation, further subdivided into two categories:
    1. Stock
    2. Non-Stock

Knowing which ownership structure your enterprise falls under is one of the first steps to opening a business. This is mainly because each structure influences the day-to-day operations of your business, the taxes you have to pay, as well as the rules and regulations that govern the conduct of your undertaking.
Here’s what you need to know about the business ownership structures you can adopt when setting up shop in the Philippines:

  • Single proprietorship

Single proprietorship is the simplest type of business structure, wherein the owner and the business are considered one and the same. This allows the owner or proprietor full control and ownership over the business, as well as all of its assets and liabilities. 
One of the things that make this type of structure attractive to entrepreneurs is the ease with which it can be registered: you only need to apply for a business name and register your business with the Department of Trade and Industry (DTI). 
With the business and its owner considered the same entity under the single proprietorship structure, you will also only need your personal Tax Identification Number (TIN) in order to get started with its registration.
How single proprietorships are taxed: Any business registered under this structure will be taxed at a graduated rate: this means that the more money you make from your business, the more you will have to pay in taxes.
Foreign ownership: Under Philippine law, a foreigner cannot register a business as a single proprietorship.

  • Partnership

A partnership is a business owned by two or more individuals. Under the Civil Code of the Philippines, a partnership is a separate, juridical entity, with its lawful object or purpose being for the common benefit of its owners. 
These businesses are registered with the Securities and Exchange Commission (SEC).
In the Philippines, business owners have the option to choose between:

  1. General partnership
    Business partners share an equal role in running the business. This means that business profits will be split equally between partners, as will its liabilities.

  3. Restricted or limited partnership
    A restricted or limited partnership distributes liabilities in such a way that while some partners will have unlimited liability, others will only shoulder liabilities that are equal to the amount of their capital contribution.

How partnerships are taxed: Unlike sole proprietorships, businesses registered as partnerships are taxed at a fixed rate of 30%. This amount will be taken out of its net income.
Foreign ownership: The Philippines allows foreigners to own up to 40% of a partnership.

  • Corporation

Businesses that are owned by a minimum of five shareholders are registered as corporations. 
Just like partnerships, corporations are treated as juridical entities, or a non-human legal entity with its own duties and rights.
The Philippines recognizes two types of corporations:

  1. Stock corporation
    In a stock corporation, investors are issued shares of stock to indicate their stake in the ownership of the company. By being shareholders, they are entitled to receive dividends or a share in the earnings of the business – as well as bear its losses. Shareholders are free to sell their stocks or buy more shares. 

  3. Non-stock corporation
    A non-stock corporation is a not-for-profit entity. It does not issue shares of its stock to its members because the organization exists to support charitable, educational, cultural, and other nonprofit activities.

According to Philippine law, a corporation should be registered with the Securities and Exchange Commission, with a minimum paid-up capital of P5,000. 
How corporations are taxed: Much like partnerships, corporations will have their net income taxed at a fixed rate of 30%. 
Foreign ownership: Moreover, foreigners are also allowed to own up to 40% of a corporation’s shares.

Planning on setting up a business in the Philippines?

FilePino can help you with all of your business-related needs. 
Whether you’re a new entrepreneur who’s testing the waters or a seasoned businessman out to expand your enterprise, trust the FilePino Team to guide you every step of the way.
Contact us today at +63.917.892.2337, [email protected], or drop your inquiries here to get started on your journey.
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