Pros and Cons of A One Person Corporation Every Businessman Should Know
Filipino business owners and foreigners alike rejoiced at the publication of the Republic Act 11232, otherwise known as the Revised Corporation Code. The long-awaited One Person Corporation is finally allowed in the Philippines. With that, Filipino business owners and foreign investors can now register their business without worrying about liabilities and meeting the minimum number of shareholders.
As OPCs are taking the limelight in the business scene, here are the pros and cons of OPC that you should know.
Pros of One Person Corporation
Reduced Compliance Obligations
First, OPCs have reduced compliance obligations. OPCs fall within the interpretation of “Private Limited Company,” as stated under the Companies Act of 2013, section 2(68).
With that, an OPC is required to comply with contracts that apply to private limited liability companies. However, One Person Corporations has been granted numerous exemptions and thus has a lower burden of compliance.
No Minimum Capital Required
On a similar note, in registering as an OPC, neither a minimum capital stock nor a portion of authorized capital is required. The only fees the business owner needs to pay are the name reservation cost, filing fees, and legal research costs to incorporate.
Favored By Banks With Business Loans
Speaking of capital, banks and other financial institutions prefer to lend corporations loans rather than private businesses. In many conditions, entrepreneurs tend to convert their enterprise into a private limited company before the banks authorize funding. Thus, listing your business as an OPC is better.
It’s also worth mentioning that a one-person corporation benefits from the perpetual succession. Consequently, it’s easier for entrepreneurs to generate business capitals because there’s no need to secure another business license if the owner has died or is no longer capable.
Complete Control of the Business
Another significant advantage of OPCs is the absolute control of the company’s owner. They’re not immune to shareholder scrutiny and don’t need to follow a board consensus. All business operations and decisions are at the sole discretion of the director.
Established Businesses can Reorganize as an OPC
Furthermore, you need not worry about restructuring your current business. An existing ordinary stock corporation (OSC) can reorganize and register as an OPC. Provided that a single shareholder must own the OSC’s securities, and the company treasurer and secretary’s function must be filled. When these preconditions are met, submit the following documents to the SEC.
- Secretary’s Certificate
- Amended Articles of Incorporation (AOI)
- The signed affidavit of approval of nominees
- Evidence of acquisition of shares
- Control clearance of the company
- Reservation of the corporation’s name
Cons of One Person Corporation
OPCs Included in the Company Name
Your company name must be specified with an “OPC.” Such attachments may mean a marginally lower impression to clients that only one person is running the corporation.
Limitations on Foreign Ownership
Foreign investors are allowed to register as OPCs. It must, however, be in an industry that allows foreign ownership. Industries authorized include the manufacture, export, and e-commerce. Also, non-Filipino investors are obliged to provide at least $200,000 capital.
High Tax Rate
As a corporation, the tax slab advantage doesn’t apply to your business. You’re expected to pay according to your earnings at a 10-30% tax rate in a sole proprietorship, but you’re charged a 30% flat rate in OPC. The higher tax rate is a huge downside of the OPC.
What to Do Next?
While it’s obvious that there’s more to pros than cons to registering your business as an OPC, the next best thing to do is find a reliable Philippine incorporation service provider.
3E Accounting Philippines is the leader in providing incorporation services to start-ups and established businesses alike. The company takes pride in its extensive years of service, professional staff, and exemplary reputations. Secure and legalize your business by working with the best service provider. Contact us, and let’s get started with your business registration.
Every critical business decision needs careful analysis of the pros and cons. You must be founded on the right and efficient track, In registering your business, It would be best to take the guide mentioned above on the pros and cons of an OPC. In doing so, remember that one factor that separates a successful business from an ineffective one is knowing the right partners to work with.