Starting a business in the Philippines can be intimidating, especially when you consider the number of things you have to learn to get it off the ground. There are tons of things you need to learn and it’s difficult to know where to start. In this blog, we’re going to look at some of the best ways you can get started with your business in the Philippines.

Contents

Choose your business structure.

Many new business owners start off from the wrong foot by not carefully considering the most appropriate business structure for their planned business. Determining which business structure can work for you will depend on a few critical factors:

Business Purpose
Revenue and Growth Potential
Compliance
Risk Appetite
Capital and Funding Requirements

We discuss each factor below so you can be guided why each is carefully considered as such before deciding on your business structure.

Business Purpose

What do you plan to do with the business you’re starting? Is it to sell goods or services? Is it for profit or not for profit? Are you opening a branch office? What is your territorial scope for the business? These are some of the questions you need to ask yourself or your business setup consultant at the start.

This is where a business plan comes in handy. In a business plan, you should be able to map out all planned activities that the business will undertake. Business purpose describes the reason that a company was initially established. What does your business plan to do once it operates?

Do you really need a pitch deck at the start? Watch this video to learn more!

Revenue and Growth Potential

Revenue is when money comes in for your business. There are many different ways to get revenue, but when it comes down to it, the bottom line is the number of sales and customers coming into your company and buying products and services. Revenues, more commonly called as Sales, is when customers arrive at your door with the intention of buying something from you and you successfully sell them everything that they need.

Your ultimate goal should be to generate more revenue than your cost, since if you do that you’ll be profitable!

For many businesses, revenues are generated from the sales of products or services. It can also be earned via other sources like revenue from subscriptions, licensing, patents, royalties or rental income.

In relation to this, revenue growth is the change in a business’ revenues, whether increase or decrease, from one period to the next. Usually shown as a percentage, revenue growth helps in identifying trends in the business.

Why is this important at the start? In the Philippines, tax impact depends on the business structure as well as the revenue growth. If you are looking to earn Php 3 million in sales in a year, you will likely be registered as a VAT taxpayer. If you project that it is not likely for the business to break the Php 3 million sales in a couple of years, then you should maximize the benefits of being a non-VAT taxpayer.

It has become usual for us to see new businesses who excitedly register as VAT taxpayers without realistically forecasting their sales. It’s important to consider that especially during the startup stage when activities are more leaned towards research and development (R&D), no sales is expected for a few months or even years.

Compliance

Many new entrepreneurs fall into the trap of just registering their businesses without realizing that responsibilities on reporting and compliance also starts as soon as the business is setup. Each government agency that you will register to has to its own reportorial requirements and deadlines. The reportorial requirements like tax returns, general information sheets, business permits, audited financial statements, annualized returns, etc. depend on the type of structure used to setup the business.

Knowing the compliance requirements will also help you plan out the manpower complement you need to comply on a timely and accurate basis. You may also consider outsourcing this part to a trusted operational finance team.

Risk Appetite

Each business structure has its own risks. For example, registering your business as a sole proprietorship makes you as a business owner liable up to the extent of your personal assets in case the business goes bankrupt since you and the business is the same. A person suing your business could make a claim against your personal assets. This is the reason why other entrepreneurs are setting up a corporation instead to minimize risks like this.

You should also think about the ease of succession. Like for sole proprietorships, natural persons could not live longer than corporations. When the sole proprietor dies, the business entity dies also. As for corporations, there is perpetual business continuity, even if the original incorporators die.

Capital and Funding Requirements

If you’re looking for more extensive funding sources for growth, you may want to consider doing a corporate structure. Corporations can easily get outside investors than those registered as sole proprietorships. When you are a sole proprietorship, it is difficult to onboard investors (legally) since the business is closely linked to you on a personal capacity. If you are a startup looking to raise funds from venture capital firms or institutional investors in the future, carefully consider this factor before registering your business.

When to choose Professional / Self-Employed structure

Choose a Professional / Self-Employed structure if you are any of the following:

You are a practicing solo licensed professional (with Philippine Regulatory Commission License). Examples are certified public accountants, lawyers, doctors, dentists, architects, engineers, etc.
You are non-licensed professional such as freelancers, remote workers, online workers, freelance copywriters, social media managers, digital marketing specialists, online bookkeepers, consultants, coaches, etc.

>> Watch this mini-course on the basics of business registration for freelancers and professionals.

When to choose Sole Proprietorship structure

So far the simplest and least formal business structure where a single person has full control and authority over the business, choose a Sole Proprietorship structure if the following describes the business structure you want to operate in:

Since you are the sole owner, you have complete control over business decisions.
You also get to enjoy and keep all the profits from the business.
Sole proprietor is liable up to the extent of personal assets in case business goes bankrupt.
You and the business is the same.
A person suing your business could make a claim against your personal assets.
Little paperwork needed compared to setting up corporations.
In the Philippines, all income you have and other sources must be consolidated.
The income tax of your business follows progressive rates of 5% to 32%.
The higher income you make out of your business, the higher income tax you will have to pay.
Natural persons could not live longer than corporations. When the sole proprietor dies, the business entity dies also.
Difficult to onboard investors (legally) since the sole proprietorship is closely linked to you personally.

When to choose Partnership structure

In a Partnership, 2 or more persons own the business but the setup is governed by The Civil Code of the Philippines, not the Corporation Code. Choose a Partnership structure if the following describes the business structure you want to operate in:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.

If you are interested in engaging in business or practicing your profession with some colleagues, a partnership may be the proper business structure.
No time limit for the existence of the partnership as this depends on the agreement of the partners.
The beginning of legal personality of a partnership starts from the time the contract begins.
Although a partner may transfer his interest in a partnership to another, the transferee does not automatically become a partner unless all the other partners give their consent.
As to liability to third persons, partners may be held liable with their private and personal property.
A partnership may be dissolved due to the insolvency, civil interdiction, death, insanity or retirement of any of the partners.
The partnership is separate from the partners.
The partnership, as a separate legal personality, can acquire its own property, bring actions in court in its own name and incur its own liabilities and obligations.
Business partners share unlimited liability for the debts and obligation of the partnership, except for general partners who are liable for the business decisions and debts of other partners, putting one’s personal assets at risk.
Partnerships are taxed just like corporations.

When to choose One Person Corporation structure

One Person Corporations are owned and established by one person only. RA No. 11232, known as the Revised Corporation Code of the Philippines (RCC), introduced several innovations to improve the ease of doing business in the Philippines. One of the most prominent inclusions is the concept of a One-Person Corporation (OPC), or a corporation with a single stockholder. The following characteristics describe an OPC:

The single stockholder can only be a natural person of legal age, trust or estate.
A foreign natural person may establish an OPC, subject to the applicable capital requirement and constitutional and statutory restrictions on foreign equity in certain investment areas or activities.
The term of existence of the OPC shall be perpetual. However, in case of the trust or estate, its term of existence shall be co-terminous with the existence of the trust or estate.
The suffix “OPC” should be indicated by the one-person corporation either below or at the end of its corporate name.
The single stockholder shall be the sole director and president of the OPC. He can be the Corporate Treasurer but not as the Corporate Secretary.
In the event of his death or incapacity, the single stockholder may be replaced by the designated nominee or by an alternate nominee.
The single stockholder is required to designate a nominee and an alternate nominee named in the Articles of Incorporation who shall replace the single stockholder in the event of the latter’s death and/or incapacity. The written consent of both the nominee and alternate nominee shall be attached to the application for incorporation.
The single stockholder who assumes the position of the Treasurer shall post a surety bond to be computed based on the authorized capital stock (ACS) of the OPC. If another person other than the single stockholder is appointed as treasurer, there is no bond requirement.

However, the following are not allowed to incorporate or organize as OPCs:

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

Watch this video to learn more if OPC structure is the right fit for you.

When to choose Regular Domestic Corporation structure

Corporations are owned by at least 2 and a maximum of 15 shareholders. The following characteristics describe a Regular Domestic Corporation structure:

Profits can be retained and also distributed to stockholders.
In case of bankruptcy, stockholders are liable only up the extent of their investments in the corporation. The personal assets are safe.
A corporation is treated legally as a personality separate and distinct from that of the stockholders who own the corporation.
Business’ assets and liabilities are separate from personal assets of you and other stockholders.
There is perpetual business continuity, even if the original incorporators die.
The business can easily get outside investors or raise funds.
Every corporation in the Philippines also requires at least 3 officers: President, Corporate Secretary, Treasurer
Out of these three, only the Corporate Secretary must be a citizen of the Philippines.
The Treasurer must be a resident in the Philippines.
The President can also be a non-resident; however, the President must be a director as well as hold at least one share.
The nationality of the shareholders determines the corporation’s extent of participation in areas of business activity and investment in the Philippines.
Domestic corporations that only consist of Filipino stockholders can freely participate in any economic activity
and industry sector in the country.

A domestic corporations can be classified as any of the following according to the Foreign Investments Act of 1991:

Domestic Corporation with 0% Foreign Equity (100% Filipino-owned)
Domestic Corporation with <40% Foreign Equity
Foreign-Owned Domestic Corporation with >40.01% Foreign Equity

Need help in setting up a corporation in the Philippines?

Foreign investors — these business structures can be organized

Those that consist of foreign stockholders are restricted to participate in activities that are included in the Negative Investment List. Among the business structures that can be organized by foreign investors in the Philippines are:

Branch Office
Representative Office
Regional Headquarters
Regional Operating Headquarters

Contents

Register your business depending on your chosen business structure.

Now that we have comprehensively discussed about your options on the business structure, it’s time to start the process to register your business. In the following section, we discuss the general steps and requirements needed for each business structure.

Registering as a Professional / Self-Employed

Register business name from DTI. This is optional.
Register as a professional taxpayer in the BIR. You will also secure your BIR Form 2303, books of accounts, notice to issue receipts and coordinate with an accredited printer for your official receipts and/or sales invoices.

Read more about the detailed requirements to register as a Professional / Self-Employed here.

>> Watch this mini-course on the basics of business registration for freelancers and professionals.

Registering as a Sole Proprietorship

Register business name from DTI.
Register as a sole proprietor taxpayer in the BIR. You will also secure your BIR Form 2303, books of accounts, notice to issue receipts and coordinate with an accredited printer for your official receipts and/or sales invoices.
Register with Local Government Unit where your business is located to obtain the following compliance: (a) Barangay Clearance from the Barangay Hall, (b) Mayor’s Permit form the Mayor’s Office from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall.

Read more about the detailed requirements to register as a Sole Proprietorship here.

Registering as a Partnership

Register company name and secure Certificate of Partnership from SEC. You will also secure your duly accomplished Articles of Partnership and Partnership By-Laws.
Register as a corporate taxpayer in the BIR. You will also secure your BIR Form 2303, books of accounts, notice to issue receipts and coordinate with an accredited printer for your official receipts and/or sales invoices.
Register with Local Government Unit where your business is located to obtain the following compliance: (a) Barangay Clearance from the Barangay Hall, (b) Mayor’s Permit form the Mayor’s Office from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall.

Read more about the detailed requirements to register as a Partnership here.

Registering as a One Person Corporation

Register company name and secure Certificate of Incorporation from SEC. You will also secure your duly accomplished Articles of Incorporation, Acceptance Letter from Nominees and Form for Appointment of Officers.
Register as a corporate taxpayer in the BIR. You will also secure your BIR Form 2303, books of accounts, notice to issue receipts and coordinate with an accredited printer for your official receipts and/or sales invoices.
Register with Local Government Unit where your business is located to obtain the following compliance: (a) Barangay Clearance from the Barangay Hall, (b) Mayor’s Permit form the Mayor’s Office from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall.

Read more about the detailed requirements to register as a One Person Corporation here.

Registering as a Regular Corporation

Register company name and secure Certificate of Incorporation from SEC. You will also secure your duly accomplished Articles of Incorporation, By-Laws and Treasurer’s Affidavit.
Register as a corporate taxpayer in the BIR. You will also secure your BIR Form 2303, books of accounts, notice to issue receipts and coordinate with an accredited printer for your official receipts and/or sales invoices.
Register with Local Government Unit where your business is located to obtain the following compliance: (a) Barangay Clearance from the Barangay Hall, (b) Mayor’s Permit form the Mayor’s Office from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall.

Read more about the detailed requirements to register as a Regular Corporation here.

Additional registration requirements if you hire employees

If you have employees or you plan to hire employees in your business, take note that you may be required to register also with the following government agencies:

Department of Labor and Employment (DOLE)
Social Security System (SSS) for employee’s social security
Philippines Health Insurance Corporation (PhilHealth) for employee’s health insurance benefits
Home Development Mutual Fund (HDMF or Pag-Ibig Fund) for employee’s housing benefits

Additional registration requirements for special industries

Likewise, if you will be operating in a specialized or regulated industry, you may be required to secure additional licenses or registration requirements with the following agencies, as applicable:

Food and Drug Administration (FDA)
Bangko Sentral ng Pilipinas (BSP)
Department of Education
Department of Energy
Department of Environment and Natural Resources

Disclaimer: This resource is intended for general information purposes only. Nothing in this article constitutes or intends to constitute financial, accounting, regulatory or legal advice and must not be used as a substitute for professional advice. You should contact consultants before making decisions related to business setup and registration.

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How to Register a Business in the Philippines: The Complete Guide