There are 4 Common Types of Business Structures in the Philippines :
Sole proprietorship
A sole proprietorship is the most basic type of business structure in the Philippines because it’s the simplest to set up. Sole proprietors such as general merchandise stores, small retail establishments are liable for the business’s liabilities, debt, and losses.
Advantage
- You can control your business as the sole owner.
- easy to start and change your structure in the future.
- Simple process of set up as only need to apply for a business name and register their business with the Department of Trade and Industry (DTI).
Disadvantage
- The owner is fully liable for the business’s debts. Then, there may be no legal distinction between the private and business assets.
- It’s challenging to attract investors compared to the other structures.
Partnership
A partnership business structure is formed by two or more people who agree to do business together to gain profit. Partnerships are more dedicated in law firms, real estate investment networks, and physician groups. The owners contribute to the company through skill, funding, labor, or something similar, and they also share the revenue when the sales come in.
There are two types of partnerships:
General partnership
General partners agree to share all profits of the business evenly divided into percentages. They can also participate in the partnership’s daily operations, and each has unlimited liability for their own actions.
Limited partnership
Limited partners are only responsible for the sum invested in the partnership. Compared to general partners, limited partners have no management rights or input into company operations.
Advantage
- You have someone or people to share the responsibility.
- It’s easier to attract investors.
- In limited partnerships, there’s no risk of losing your assets since you’re only liable for your investment.
Disadvantage
- You have no absolute control over the business.
- General partners are liable for other partners’ business decisions and debts, which may put your assets at risk.
Corporation
A corporation in the Philippines is treated legally as a personality separate, distinct from the stockholders who own the corporation.
There are two kinds of a corporation:
Stock corporation
The stock capital is divided into shares, which are distributed to investors. Investors will then receive the dividends and the parts of the surplus profits computed based on the number of their shares.
Non-stock corporation
A non-stock corporation doesn’t issue stock shares to its members since it exists for charitable, religious, educational, cultural, civic service, or other equivalent purposes.
Advantage
- You have liability protection.
- There are specific tax exemptions for corporations.
- You get better funding.
- It ensures business continuity.
Disadvantage
- Forming and maintaining a corporation in good standing is more complex and time-consuming.
- This structure requires close coordination with the Securities and Exchange Commission (SEC) and involves multiple record-keeping and accounting work.
One-person corporation
A one-person corporation (OPC) only has one stockholder who can be a natural person, trust, or estate. It combines the best aspects of a corporation and a sole proprietorship, namely limited liability and complete dominion.
Advantage
- You have complete control of the business, as all business decisions are at the OPC director’s sole discretion and profits.
- There’s limited personal liability.
- Foreign naturals can set up an OPC subject to approval.
Disadvantage
- This structure is limited to natural persons, trusts, or estates.
- OPC requires more complex processes and paperwork.
The factors to Consider when selecting a Business Structure
Funding
Corporations can fund their business from investors and bank loans by selling shares or raising more money. Single proprietorship uses their credit or undertakes partners.
Control
If you want primary control over your business, consider the structure of a sole proprietorship. Partnerships bring in other people in top management, but their responsibilities can be detailed in the contract. Meanwhile, corporations need a board of directors, requiring mutual agreement regarding the division of control.
Liability
Corporation offers limited responsibilities to the capital injected to the Company while a sole proprietor has unlimited responsibilities to his/ her personal assets.
Taxes
Sole proprietor owners pay personal income tax, while partners claim a portion of their profits as personal income.
For other types of business structures, the Bureau of Internal Revenue (BIR) regulations need to be kept in mind, such as filing tax returns promptly and accounting for tax exemptions accordingly.
Opko Finance, an accounting and outsourcing services company based in Asia and managed by a French expatriate, helps Start up, SME, Entrepreneurs, subsidiaries of big companies to set up and develop their business in the best hubs in Asia and Middle East, faster and with fewer resources through outsourcing solutions in the Philippines.
For any information on the legal structures in the Philippines and the process of incorporation, please contact our team to info@opkofinance.com.
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