How To Set up a Corporation in the Philippines 2022

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How do corporations work?

A corporation is a business that is recognized by the state as a legal entity separate from its owners or the shareholders. According to Shannon Almes – attorney at Feldman & Feldman, corporations can generally conduct any lawful business and the actions necessary to conduct the business. Actions such as entering into contracts, owning assets, borrowing money, hiring employees, suing, and being sued. 

Moreover, corporations are monitored by the board of directors who are elected by the shareholders. Also, the latter has the opportunity to vote and the numbers of it depend on the sums of their shares.

Then, the board of directors oversees the daily operations of the corporation by hiring employees or a management team. Shareholders get profits depending on the number of shares they hold in the company. And because the shares of a corporation are easy to buy and sell, ownership of it can be easily transferable.

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The different types of corporation in the Philippines

• C Corporation – This is the most common type of corporation. C-Corp has the ability to get an unlimited number of shareholders and the corporation’s income is taxed as a separate entity. Whereas, the shareholders of C-Corp are taxed depending on the dividends they receive from the corporation.
• S Corporation – S-Corp is somehow similar to C-Corp. It still gives the shareholders a limited personal liability but it avoids double taxation. Meaning, the income, loss, credits, and deductions are passed to the shareholders which are then reported and taxed on their individual tax returns.
• B Corporation – “Benefit Corporation” or B-Corp is a profitable corporation that mainly aims to benefit the society. Creating this type of corporation can be a little complicated since you have to be certified and bestow upon a seal of approval that the corporation is dedicated and legally committed to improving the society.
• Close Corporation – This type of corporation is either a private company, a family corporation, or an incorporated partnership. Simply put as a corporation privately held by a few shareholders only.
• Non-profit corporation – The owners can only form a non-profit organization if it’s for religious, charitable, political, literary, scientific, educational, or benevolent purposes. A non-profit corporation is prohibited from distributing profits to members, owners, directors, or officers. But, this does not preclude the non-profit corporations from paying wages or any reasonable compensation when a service is rendered.

One-person Corporation – As favored to the RA 11232 or also known as the Revised Corporation Code of the Philippines, it paved the way for a One-Person Corporation last February 23, 2019. This corporate structure can be owned by a single shareholder who can be a natural person, estate, or trust. The goal of this republic act is to improve the comfort of doing business in the Philippines and attract more investments to further progress the economy.

If you are thinking to start a One-person Corporation, you can refer to the requirements below this article:

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What are the differences between a business, company, and corporation?

• A Business is an organization or system which aims to produce goods and services in exchange for money or profit. A business can be non-profit, state-owned, or privately-owned.
• A Company is an entity that engages in business through a sole proprietorship, partnership, or corporation.
• A Corporation is any type of company that declares itself as a separate legal entity and is guided by a group of officers or otherwise known as the board of directors.

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Where to register a Corporation?

There are different agencies in the country where you are required to register a corporation. The following agencies are:

Note: All of these agencies are hyperlinked so you can directly turn to their website and further read their terms and conditions about opening a corporation.

• Securities and Exchange Commission
• Local Government Units where your business is located:
  • Barangay
  • Mayor’s Office
• Bureau of Internal Revenue
• If you have employees, you need to register to the following:
  • Social Security System
  • Philippine Health Insurance Corporation
  • Home Development Mutual Fund

Now that you know all the things that need to be understood about a Corporation, it’s time to distinguish the steps on how to set up a corporation in the Philippines.

1. Reserve and register the name of your business in Security and Exchange Commission or SEC. You can visit their website linked above or make a personal appearance at their main office in Mandaluyong City, Philippines.

Keep in mind that you have to complete and sign all the following requirements in order to finish this first step.

• Articles of Incorporation
  • By-Laws
  • Treasurer’s Affidavit
  • Joint Affidavit of Two Incorporators

Make sure that all the documents are notarized. You can also refer to the full list of requirements and documents needed for SEC below.

2. Get a Barangay Clearance. To do this, you have to go to your Barangay Hall with the following requirements:

• Certificate of Business Registration from SEC
• (2) Two Valid IDs
• Proof of Address (You can bring the Contract of your Lease or Certificate of Land Title)

3. Get a Business Permit from the Mayor’s Office. You can do this by visiting the municipal office during business hours and request for a business permit form. After filling out all the necessary personal information, submit it on the office desk with the following requirements:

• Certificate of Business Registration from SEC
• (2) Two Valid IDs
• Proof of Address (You can bring the Contract of your Lease or Certificate of Land Title)
• Recently acquired Barangay Clearance

4. Register your business in the Bureau of Internal Revenue or BIR. Follow the preceding steps to complete this step.

• Visit the Regional District Office that covers your business location.
• Request for a copy of BIR Form 1903 — Application for Registration of Partnership or Corporation.
• Submit the following together with your completed Business Permit: Certificate of Business Registration from SEC, Two (2) Valid IDs, Proof of Address (Contract of Lease or Certificate of Land Title), Barangay Clearance, Business Permit from Mayor’s office.
• Pay all applicable fees and register your book of accounts and receipts.
• Claim your Certificate of Registration.

As abovementioned, this is the Full List of Requirements and Documents needed for the Security and Exchange Commission.

1. Name Reservation/Verification Slip
2. Cover Sheet
3. Articles of Incorporation
4. Corporate By-laws
5. Registration Data Sheet
6. Registration Data Sheet (CAPITAL STOCK / INCORPORATORS /DIRECTORS / OFFICERS INFORMATION)
7. Affidavit of Undertaking to Change Corporate Name
8. Treasurer’s Affidavit stating the amount of the shares of stock subscribed and the amount of the subscription price which has been paid into him as Treasurer-in-Trust of the proposed corporation. He should likewise certify that at least twenty-five percent (25%) of the authorized capital stock has been subscribed, and at least twenty-five percent (25%) of the amount subscribed has been paid into him for the benefit and to the credit of the corporation.
9. Bank Certificate

Anent the documents, the following information must be supplied to adequately fill out the necessary documents for submission with the SEC:

1. Corporate Name (The last part must end with Inc., Incorporated, Corporation or Corp.)
2. Purpose of the Corporation
3. Address of the Corporation
4. Telephone Number
5. Value of each share (This is usually P100.00 for 1 share)
6. Authorized capital (Total number of shares of the Corporation)
7. Subscribed capital (Number of shares to be subscribed by the incorporators. This cannot be less than 25% of the authorized capital)
8. Paid-up capital (Number of shares paid by the incorporators. This cannot be less than 25% of the paid-up capital)
9. Name and Branch of Bank where the paid-up capital amount will be deposited
10. Incorporators (Name, nationality, address, birthday, Tax Identification Number, Community Tax Certificate Number or Passport Number)
11. Shares of the Incorporators (number of subscribed shares, number of shares paid and percentage of ownership)
12. Number of Directors and their names (Must be an incorporator. Not less than 5 and not more than 15 directors)
13. Name of the Chairman of the Board
14. Name of President
15. Name of Corporate Secretary
16. Name of Treasurer
17. Term of existence of the Corporation
18. Preferred date of Annual Stockholders’ Meeting, e.g. any day in May of each calendar year
19. Accounting Year of the corporation (Calendar Year or Fiscal Year. Calendar Year is recommended since this is used by most government agencies)

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How can I register a Corporation in the Philippines online?

The Securities and Exchange Commission (SEC) just launched an online Company Registration System (CRS). It can be accessed via their website. The aim of the former is to provide Filipino individuals with the following services:

• Company/Corporation registration
• Appeal for proposed company name
• Amendments
• Search registered company names
• Inquiries for requirements regarding application

Using SEC’s online ESPARC is easy. Follow the preceding steps to successfully register a corporation in the Philippines. To summarize, access the provided link above and follow the preceding steps.

1. Create an account to access the CRS. Once done, open your browser and log on to https://esparc.sec.gov.ph/application.

2. Click the “proceed” button to continue accessing the online form.

3. Once you gain access to the online form, fill out all the necessary information about your company. Here, you also have to choose which processing office you prefer and the proposed company name for your corporation.

4. You have to make sure that your company name has passed the verification status to proceed.

5. Next, you have to fulfill all the necessary details about your company. This includes the Principal Office Address, Capital Structure, Company Officers, etc. After this, the screen will flash your status as “DRAFT”. Keep in mind that it’s important that all the information you will provide are correct.

6. The SEC will review your application. And since you picked the One-day processing, the reviewing period should be over in just 24 hrs. Once they’re done, you have to read all the terms & conditions and accept. Click “Proceed to Online Payment” to continue.

7. Pay all the required fees until you get an electronic official receipt number.

8. Finally, you can now download the Interim Certificate of Corporation for your business. To do this, you will be redirected to SEC-ESPARC once you clicked the “Go back to ESPARC” button of the SEC Payment Portal. Just Click the “Download Interim Certificate” button to open/download the Interim Certificate of Incorporation.

Furthermore, if you want a thorough step-by-step guide, you can click the following links to access both of the user guides in OneSEC Processing and Regular Processing.

You can download the deep and more detailed step-by-step guide at this link or at this link.

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How much are the SEC filing fees for the incorporation or a domestic corporation?

• The basic filing fee for incorporation is 1/5 of 1% of the authorized capital stock or the subscription price of the subscribed capital stock of the business, but it should not be less than PHP 2,000.
• Legal Research is 1% of the filing fee.
• Examining and filing fee for the by-laws amounts to PHP 1,010.
• The cost and registration of the stock and transfer book is PHP 470.

Remember, it usually takes 2 to 3 weeks before your documents are fully examined by the SEC. After that, they will correspondingly issue you the Certificate of Incorporation.

Reserving your corporate name either online or personal should be your first step with the SEC. Once the name of your corporation is reserved, you may now proceed on submitting the documents listed above.

If you want a faster way to procure the listed documents, you can buy the “Green Lane Forms” from the SEC. The said forms can cost you PHP 500 but the process will be much faster and can only take up to 1 to 2 days.

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Requirements to start a One-Person Corporation

• Articles of Incorporation for One Person Corporation
• Written Consent from the Nominee and Alternate Nominee
• Cover Sheet
• Other Requirements, if applicable:
  • Proof of Authority to Act on Behalf of the Trust or Estate (for trusts and estates incorporating as OPC)
  • Foreign Investments Act (FIA) Application Form (for a foreign natural person)
  • Affidavit of Undertaking to Change Company Name, in case not incorporated
  • Tax Identification Number (TIN) for Filipino single stockholder
  • Tax Identification Number (TIN) or Passport Number for Foreign single stockholder
• Filing Fees (which includes):
  • Registration Fee
  • Legal Research Fee
  • Name Reservation Fee
  • Documentary Stamp Fee
  • FIA Fee (if applicable)

Once established, the SEC will require the following to be submitted on certain periods:

• Annual financial statements audited by an independent CPA
• Reports containing details or comments by the President on every qualification, reservation or disclaimer made by the auditor in the Audit Report.
• Disclosure of all self-dealings and related transactions between the one-person corporation and the single stockholder
• Other reports as the SEC may require.

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What are the steps to register to a One-Person Corporation?

You can visit link to further know the steps on how you can register to a One-Person Corporation.

Just make sure that you will have notarized and hard copies of all the registration documents you need. Also, the SEC Office is where your Certificate of Registration will be released.

Keep in mind that there are also advantages and disadvantages of opening this kind of corporation. Its advantages include:

• No minimum capital stocks is required upon registering.
• You don’t have to submit or file corporate by-laws.
• As compared to sole proprietorship, you can easily switch from One-Person to a domestic corporation.
• The success of the business is continuous and smooth as compared to a sole proprietorship.

Disadvantages include:

• Professionals and banks are not eligible to become a One-Person corporation
• The current fixed income tax is 30%, compared to sole proprietorship which only has 8% income tax if the annual income of the business is less than PHP 3,000,000.
• There are lots of administrative requirements compared to a sole proprietorship company.

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What are the advantages of One-Person Corporation as compared to Sole Proprietorship and Partnership?

1. OPC has a separated juridical personality. Meaning, it has an independent existence from its individual shareholders. While in Sole Proprietorship and Partnership, they’re both the shareholders as well as the proprietor. 
2. It provides a high level of succession as compared to Sole Proprietorship and Partnership. Meaning, if the ownership of the former and latter dies, the company is also terminated. Whilst, in OPC, if the sole shareholder’s ownership dies, the heir can continue managing the corporation. 
3. The Growth and Longevity of OPC are much better than Sole Proprietorship or Partnership. For example, the latter wishes to turn their company into a corporation, a lot of complex requirements and the transferring of assets to a corporation can cost taxes. On the other hand, an OPC can change into a regular corporation without compromising its registrations, investors, and strategic partners. Meaning, OPC just needs to do is to amend the Articles of Incorporation where they’re required to follow the governance for regular corporations like having a corporation that does not exceed 15 persons. 

As you fulfill your knowledge on how you can set up a corporation in the Philippines, let’s now talk about why it’s important that you have your business registered.

1. It’s for legal protection. If you have a business license, it means that you complied all the necessary requirements to operate a business. A business license also ensures that your newly established business’ policies are in line with the rules and regulations of the city. Customers will also easily trust you if your business has a license.
2. You’ll take credit. A lot of businesses are booming nowadays. Whether it’s an industry plowed upon the internet or not. And in order to trust you by the customers, they must know that your business is legitimate and not a scam. Owning a business license can prove this.
3. Ease of applying and receiving funds. There will be a moment when your business may need a financial backup from business lending companies. Having a business license will prove that you are legally operating your business and is qualified for a business loan.
4. For tax compliance. Entrepreneurs who hold business license needs to comply with taxes – this is to easily keep them out of any legal or financial trouble and pay the federal/state taxes on a quarterly basis.

Read more: Complete Guide How to Register Your Online Business in BIR and DTI 2021

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Conclusion

Indeed, getting the benefits of having a corporation can be a little cause of stress. But once you are done with fulfilling the requirements, the hassle will be worthwhile. A Corporation can be your key to financial freedom and your hack to grow your business onto something you dreamed of.