Before launching a business in the Philippines, you must select a legal organizational structure, such as a sole proprietorship, partnership, or corporation. Corporations are a popular choice among the available options for many entrepreneurs looking to build large enterprises due to their liability protection, scalability, and credibility advantages.
Many aspiring entrepreneurs fail to realize that there are different kinds of corporations. We’ll explain each type and its advantages to help you choose the best one for your business.
What is a Corporation?
A corporation is a legal entity separate from its owners. It is created under Philippine law and registered with the Securities and Exchange Commission (SEC). Because it has a legal personality, it can enter into contracts, acquire assets, sue, and be sued independently of the individuals who own or manage it.
Most corporations are owned by shareholders and managed by a board of directors or trustees. This structure clearly separates ownership from management, which can help reduce personal risk and increase operational efficiency.
What are the Advantages of Forming a Corporation?
Forming a corporation comes with several advantages:
- Limited Liability: Shareholders are generally not personally liable for the corporation’s debts and liabilities. Their risk is limited to the amount they invested.
- Business Continuity: A corporation has a continuous existence, meaning it doesn’t dissolve upon the death or withdrawal of an owner. This makes succession and long-term planning easier.
- Access to Capital: Corporations can raise capital more easily through the issuance of shares, making them more attractive to investors.
- Credibility and Public Perception: Being registered as a corporation can increase your business’s credibility with clients, suppliers, and banks.
- Tax Planning Opportunities: Corporations may benefit from tax incentives not available to sole proprietors and partnerships. At higher incomes, corporations also have lower tax rates.
Types of Corporations in the Philippines
Choosing the right type of corporate business structure depends on your business goals, ownership structure, and expansion plans. Here are the main types recognized under Philippine law:
- Domestic Corporation
A domestic corporation is a company formed and registered under Philippine laws, with at least two but no more than fifteen incorporators. These incorporators must subscribe to shares and be part of the company at the time of incorporation. Domestic corporations can be 100% Filipino-owned or may allow foreign equity, subject to restrictions under the Foreign Investments Negative List.
This is the most common type of corporation for entrepreneurs looking to scale operations or attract investment.
- One Person Corporation (OPC)
Introduced by the Revised Corporation Code of 2019, a One Person Corporation (OPC) allows a single individual to form a corporation without the need for partners or co-owners. The sole incorporator can be a natural person, a trust, or an estate.
Key features of an OPC include:
- No minimum capital requirement (except in certain regulated industries)
- The single stockholder acts as both the sole director and president
- Must designate a nominee and alternate nominee in case of incapacity or death
An OPC is ideal for freelancers, consultants, or small business owners seeking the benefits of incorporation, such as limited liability, without requiring partners. However, professionals in regulated fields, such as accountancy or law, cannot form an OPC for their professional practice due to specific regulations.
- Foreign-Owned Domestic Corporation
This domestic corporation is formed in the Philippines with more than 40% foreign equity. Foreign ownership is allowed in many industries, but some sectors are subject to limits or prohibitions under Philippine law.
Foreign-owned domestic corporations must meet a minimum paid-up capital requirement of US$200,000, which may be lowered to US$100,000 in certain circumstances (e.g., if the business involves advanced technology or directly employs at least 50 employees).
This structure is best for foreign investors planning to establish long-term operations in the Philippines.
- Foreign Corporation (Branch or Representative Office)
A foreign corporation can also operate in the Philippines through a branch or representative office, provided it secures a license from the SEC.
- A branch office can earn income in the Philippines and is subject to the same tax obligations as domestic corporations.
- A representative office cannot earn income and can only perform liaison or marketing activities on behalf of the parent company. It must remit at least US$30,000 as inward capital.
These options are suitable for multinational companies seeking to expand operations or establish a local presence.
Stock and Non-Stock Corporations
The corporations we discussed can be classified as either stock or non-stock, subject to specific regulatory restrictions.
Stock corporations in the Philippines are profit-driven, with capital divided into shares, ideal for ventures like retail. Non-stock corporations focus on non-profit goals like charity or education, reinvesting surplus funds to support their cause. Both are governed by the Revised Corporation Code and registered with the SEC. Stock corporations can be domestic OPCs or foreign-owned. Non-stock corporations cannot be OPCs but may include foreign members, with restrictions (e.g., 40% equity cap in education).
- Key Features (Stock):
- Shares issued—dividends distributed.
- Limited liability.
- Can be domestic OPC or foreign-owned.
- Key Features (Non-Stock):
- No shares; surplus reinvested.
- Limited liability; mission-driven.
- Can be domestic or foreign-owned with restrictions
- Not OPC-eligible.
Which Type Best Suits Your Business?
The right type of corporation depends on your capital, number of owners, and long-term plans:
- Solo entrepreneurs: Can switch to an OPC to gain the benefits of a corporation while retaining full control and limited liability.
- Business partnerships: Considering becoming a domestic corporation for its flexibility, credibility, and other benefits.
- Foreign investors: Choose between a foreign-owned domestic corporation, a branch, or a representative office based on your intended operations.
Whether you choose a stock or non-stock corporation, proper business registration and compliance are required to operate legally. Corporations are the most difficult business structure to register, requiring complex documents like the Articles of Incorporation and Bylaws. However, the benefits make the effort worthwhile for businesses looking to expand.
If you’re looking for the easiest way to register, contact us. We’ll assist with registration and secure all the documents your business needs.
Final Thoughts
Incorporating your business in the Philippines offers several advantages from limited liability and easier access to funding to greater long-term growth potential. Whether you’re an aspiring entrepreneur or an established business owner, structuring (or restructuring) your business as a corporation can be a smart move. Understanding the different types of corporations and the benefits each one offers will help you choose the best fit for your goals.
If you need help determining which type of corporation best suits your needs, our corporate law experts are here to guide you. We offer professional consultation and registration services to support your business growth and take it to the next level.
Are You Incorporating a Business for the First Time? Here’s Where to Get the Right Support.
Registering a corporation in the Philippines can be a complex and time-consuming process. The registration process can be overwhelming, from preparing documents like the Articles of Incorporation to securing various government permits and licenses. Missing a requirement or overlooking a renewal deadline can lead to hefty fines or even suspending your operations.
That’s where Triple i Consulting comes in. Our team of experienced lawyers and accountants provides comprehensive support for your business registration, so you don’t have to stress over the paperwork. We’ll handle the permits and renewals so you can focus on what matters most—running your business and achieving financial success.
Contact us today to schedule an initial consultation with one of our experts:
- Fill out the form below
- Call us at: +63 (02) 8540-9623
- Send an email to: info@tripleiconsulting.com
