What to Know About Philippines Company Registration
Working for a company is a good way to make a living. However, this setup may not be for everyone, especially if you want to be someone in charge of your own company instead of working for one. In this case, you have to know all things related to starting your own business.
What is there to know? Aspiring entrepreneurs should know how much investment they must pout in to make their ventures into reality. They should be able to identify what is the nature of the business they are establishing. Future business owners should also know everything about Philippines company registration so they can operate legally.
Let this article guide you about everything you need to know regarding Philippines company registration. This will cover the basic concepts and procedures you have to follow to make sure that the Philippines company registration will go smoothly as planned.
Types of Companies in the Philippines
When you are starting a business, you have to think first about what type of company you want to establish. This is the first and foremost thing you should think of so you can go in the direction you want. Please note that there are two categories of types of companies: ownership and industry.
Based on Ownership
There are three types of companies, according to ownership. Here they are:
- Sole Proprietorship. Based on the name, you could infer that this is a company owned and registered by only one individual. The proprietor, who has full control of the business operations, is given the complete authority to make all the company’s decisions. This also means that the business owner is entitled to all the profits arising from the operations. At the same time, the proprietor carries all the burden of company losses. Given that full ownership lies in the hand of the proprietors, they also own all the company assets and are liable to all obligations. Because the proprietors and their businesses are deemed one taxpayer, they have the same taxpayer identification number registered with the regulators.
- Partnership. This corporate structure has two or more individuals called partners, forming the company. A partnership is considered as a juridical entity under the Philippines’ Civil Code, making it a separate entity from its owners. Therefore, the partnership also has rights and duties like a legal person as authorized by the law. It can own, buy, and sell assets of the company, for example. Partnerships can be general or limited, which is differentiated by how partners and the company assume liabilities.
- Corporation. In a corporation, there are many shareholders—which are either natural or juridical entities—that may partake ownership in or considered as the company. A corporation is also an entity separate from the shareholders. To set this up, there should be a minimum of 15 incorporators with a total minimum paid-up capital of P5,000. The liability of the shareholders is only limited to their investment in the company. Corporations are classified as either stock or non-stock types.
Based on Industry
Meanwhile, here are the types of companies according to the industry they are engaged in.
- Manufacturing. This type of company is involved with processing raw materials to finished products through labour, types of machinery, and other overhead costs. Companies teamed up with the manufacturing firm can sell these products directly or via retail to the customers. Usual products include cars, electronics, clothes, footwear, drugs, and even wine.
- Merchandising. This business is focused on reselling products to consumers. Given this setup, a merchandising company keeps and tracks inventory goods to be sold. The inventory is an asset that can generate income for the business through price markups during the sale of the items. The usual kinds of merchandising firms are department stores, groceries, wholesale distributors, and vehicle dealerships.
- Service. This sector is the biggest portion of the business sector in the Philippines. Service companies provide services and intangible goods, which are the source of their operating income. These firms include hotels and restaurants; professional practices such as law, accounting, engineering, and architecture; entertainment; airlines and tour operators; hospitals, telecommunication, and business process outsourcing.
Comparing the Types of Companies Based on Ownership
Before considering Philippines company registration, you really need to know which type of company you should establish. There advantages of picking one from the other depending on your needs.
Why should you pick a corporation over a sole proprietorship or partnership?
- In a corporation, shareholders are only liable for the amount of their ownership. They are not liable for corporate debts.
- A corporation is deemed to have continuous corporate life and will not expire even upon shareholders, directors, or officers’ death.
- Raising funds can be more easily done by corporations through a share sale.
- Ownership in corporations may be sold to third parties without having to disrupt the business operations.
Why pick sole proprietorship or partnership over a corporation?
- Entrepreneurs will shell out a little less money for sole proprietorships and partnerships.
- Sole proprietorships and partnerships require fewer formalities compared to corporations.
Hopefully, these pieces of information can help you pick which one would work out in your case.
How to Register Single Proprietorship
Now, let’s discuss the nitty-gritty of business registration.
In the Philippines company, the sole proprietorship registration you have to process through the Department of Trade and Industry (DTI).
When picking your business’s name, you have to make sure that it is unique and represents your company. To make sure that name is available, do an online check through the Philippine Business Registry website. With this reference, you can eliminate some proposed business names that are already existing. The business name approved by the DTI has a validity of five years after registration.
Register your business through the online portal of the DTI. The regulator has an online application form available on its website.
Visiting the DTI office, you should be prepared. Present at least three proposed business names. In addition, here some of the requirements for the registration:
- Applicant must be a Filipino citizen with the age of at least 18
- Two copies of completed application forms with the owner’s signature
- Two government-issued identification cards
After submitting the requirements, you have to pay for the registration and documentary stamp tax.
Your registration fees, take note, will depend on the territorial scope of your business. Here are the corresponding fees:
- Barangay – P200
- City or Municipality – P500
- Regional – P1,000
- National – P2,000
You can expand your territorial scope if you wish to. This requires additional steps, however.
How to Register Partnerships or Corporations
The government agency in-charge of Philippines company registration for partnerships and corporations is the Securities and Exchange Commission (SEC).
Like in a sole proprietorship, you also have to check if your proposed business name is still available. You can verify this via the SEC website. You can reserve the company name online, and you have to confirm it in any SEC office within four days. Otherwise, it will be forfeited.
You can fill out the application forms through the SEC online portal. You can print it out for submission later on to the SEC office. The basic requirements when you register for a corporation or a partnership are the following:
- reservation payment confirmation
- cover sheet for registration
- articles of incorporation
- by-laws of the company
There are additional documents needed specific to the type of business you are applying for—if it is domestic or foreign-owned, for example. You have to take a look at the website for further requirements.
While you can complete your Philippines company registration online, you can also accomplish this manually by visiting an SEC office.
Meanwhile, you also have to consider the minimum capital requirement for corporations.
This requirement depends on the level of foreign ownership in the corporation. If the domestic corporation has over 40-percent foreign ownership, the minimum capitalization should be USD 200,000. For domestic corporations with less than 40-percent foreign ownership, the capital requirement is set at least P5,000.
Securing Mayor’s Permit for the Business
After completing the Philippines company registration, there are still more steps you have to follow so the government will allow your legal operations. You have to file an application for the mayor’s permit, which also requires barangay clearance first. So basically, you need to process both applications.
To apply for barangay clearance, you have to prepare the following:
- completed barangay clearance application form
- certificate of business registration issued by DTI or SEC
- two valid IDs
- proof of address
- registration fee
For the mayor’s permit, here are the requirements:
- accomplished mayor’s permit application form
- articles of incorporation or certificate of business registration
- community tax certificate
- barangay clearance certificate
- two valid IDs
- proof of address
- building permit
- location clearance
- certificate of occupancy
- fire safety/inspection permit
- electrical inspection certificate
- mayor’s permit processing fee
There might be sector-specific clearance that you have to secure as well, depending on the nature of your business. A travel agency, for example, will also need to get a clearance from the Department of Tourism to operate.
Complying With Tax Requirements
Philippines company registration is just the first step in having a business. As you run your business, you also have to pay for the taxes that come with it. With this, you have to register your company with the Bureau of Internal Revenue. You also have to prepare certain documents, such as birth certificate, valid Ids, mayor’s permit, and certificate of registration of business name issued by the Trade department.
Registering Business With Other Government Agencies
After getting your taxpayer identification number, you also have to be registered with other government agencies, including the following:
- Social Security System. You have to visit the provincial office of this government agency where your business is located.
- Philippine Health Insurance Corp. Having a membership in this government agency will allow all your employees to have medical care benefits provided by its insurance program.
- Pag-IBIG. It is a savings program that aims to provide home financing for employees.
- Department of Labor and Employment. Requesting a permit from the Labor department ensures that the employer follows occupational safety and health standards.
Opening Corporate Bank Account
It is important to have a corporate bank account for your business. It has many benefits that you should consider after you completed your Philippines company registration. Here are the following perks:
- The business’s financial records can be more organized, given that the bank account can track the fund movements.
- Your business can look professional, thus improving credibility.
- You can allow your customers to pay for the products or services through online banking.
Depending on the bank, there might be different requirements for you to open your corporate bank account. But banks require the following:
- business registration from DTI
- registration certificate from BIR
- mayor’s permit
- articles of incorporation
Foreign Ownership in Business
If you are a foreign entrepreneur trying to launch a business in the Philippines, you have to remember the guidelines. In the country, some industries could not be 100 per cent owned by foreign entities. You have to take note of these. However, here are some which allow full foreign ownership:
- internet business
- wellness centres
- supplemental training centres
- lending companies
- financing firms
- investment houses
- information technology
- business process outsourcing
Refer to the Foreign Investment Negative List to know which are not allowed to have full foreign ownership.
Alternative Way of Doing Business in the Philippines
To build a business in the country, you do not always have to establish a corporation. An alternative to this is setting up a representative office. It is an office created by a parent company. It cannot participate in any commercial activities. But they can contribute support activities to the parent company.
For a parent company to set up a representative office in the country, it should transfer USD 30,000 to the corporate bank account here. This amount should be remitted annually so the office can pay for its operating expenses.
Need help with your Philippines company registration? 3E Accounting is here for you. Reach out to our team today. We offer different services, including accounting, business advisory, and tax.