October 7, 2019 |
Foreign and local investors can establish a business in the Philippines through registering any of the four major business formation types: corporation, partnership, sole proprietorship, or cooperation. Those looking to register a corporation have two available options: acquiring a license that will allow a foreign company to operate in the Philippines or setting up a new domestic company.
Each specific business entity has its own tax obligations, startup costs, paid-up capital requirements, registration and incorporation process, and ownership structure. You will also need to coordinate with different government agencies depending on the type of business entity you’re planning to register.
In this article, we’ll take a look at the different types of business entities in the Philippines.
Corporation
There are two types of corporations in the Philippines:
- Stock Corporation – A stock corporation is a for-profit corporation that has capital stock divided among shareholders. Each shareholder receives a part of the ownership of the corporation through stock shares, and may receive a return on their investment through dividends.The two type of stock corporations are:
- Domestic Corporations (organized under Philippine laws)
- Foreign Corporations (organized under laws from the corporation’s country of origin)
- Non-stock Corporation – This type of corporation does not generate profit or issues stock shares to several members. A non-stock corporation can be established for any of the following purposes:
- Educational
- Religious
- Cultural
- Charitable
- Civic service
- Other similar purposes such as agriculture or industry
Concerned government agencies involved in the registration of a corporation include:
- Securities and Exchange Commission (SEC)
- Bureau of Internal Revenue (BIR)
- Local Government Units (LGUs) in the location of the business
Corporations employing individuals are required to register with:
- Social Security System (SSS)
- Home Development Mutual Fund
- Philippine Health Insurance Corporation (PhilHealth)
Partnership
Partnerships are separated into two different categories:
- General Partnership – this type of arrangement is run by two or more individuals known as general partners. These general partners have an agreement to share all profits, assets, and legal and financial liabilities of the business amongst themselves. All general partners may oversee the daily management of the partnership, and each partner has unlimited liability concerning all actions of the partnership, including actions committed by other partners.
- Limited Partnership – Unlike a general partnership, partners in a limited corporation (or limited partners) can only be held liable according to the extent of their investment in the partnership. Limited partners do not have management authority nor any input on the operations of the company.
Registering a partnership will require working with the following government agencies:
- Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI) – Registration with the SEC if the capital of the corporation is PHP 3,000 or more, and DTI if it does not exceed that amount.
- BIR
- LGUs in the area where you plan to setup the partnership
Partnerships employing individuals are required to register with:
- Social Security System (SSS)
- Home Development Mutual Fund
- Philippine Health Insurance Corporation (PhilHealth)
Sole Proprietorship
A sole proprietorship is owned by a single individual with complete authority and control over the business. The individual is known as the sole proprietor, and owns all profits and assets of the business exclusively. The sole proprietor is also personally liable for all losses and debts that are incurred by the business.
The two types of sole proprietorships are:
- Filipino-owned
- Foreign-owned
Foreign entities are allowed to establish a sole proprietorship in the Philippines if they are able to meet the minimum capital requirement of US$ 200,000. All proposed business activities should also not fall within investment areas included in the Foreign Investment Negative List (FINL) as fully or partially restricted to foreign entities.
The government agencies involved in the registration of a sole proprietorship include
- DTI’s Bureau of Trade Regulation and Consumer Protection
- BIR
- LGUs in the planned location of the sole proprietorship
Cooperative
Unlike partnerships or corporations, a cooperative is managed by an electoral system that allows all members to elect officers on a one vote per member principle. Cooperatives have a democratic and collective ownership.
Types of cooperatives include:
- Producers Cooperative – covers joint production for industrial or agricultural purposes
- Consumer Cooperative – procures and distributes commodities to members and non-members
- Service Cooperative – involved in service-centric activities such as transportation, medical, dental care, labor, housing, communication, and other similar activities.
- Cooperative Bank – provides a variety of financial services to cooperatives and its members.
- Credit Cooperative – promotes and provides saving and lending services and offers financial assistance to members.
- Multi-purpose Cooperative – combines two or more of the business-related activities listed above.
The Cooperative Development Authority is the only government agency involved in the registration process of a cooperative.
Planning to set up a business in the Philippines? Contact us at FilePino today! +63.917.892.2337 or (+632).7792.9100, or send us an email at info@filepino.com.
