The Philippine law allows the formation of three types of local organizations, with registration requirements different from one to the other. A corporation is the most common setup as it gives protection against liability of the owners; while sole proprietorship and partnership are more of a formal arrangement allowing the organization to do business.
Foreigners are allowed to participate and own whichever of the 3 entity types, with the exceptions according to the restrictions of ownership found in the Foreign Investment Negative List. The capital requirement varies greatly when foreign ownership of more than 40% is involved, unless in an export business.
A sole proprietorship is a business structure owned by an individual who has full control and authority over the company, owns all the assets, and personally owes and answers for all liabilities or suffers all losses, but enjoys all the profits to the exclusion of others.
A sole proprietorship must be applied for a Business Name and registered with the Department of Trade and Industry (DTI).
Under the Civil Code of the Philippines, a partnership, consisting of 2 or more members, is treated as juridical person, having a separate legal personality from that of its members. Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership; or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. A partnership with more than P3,000.00 capital must register with the Securities and Exchange Commission(SEC).
A Philippine corporation is a separate juridical person established under the Corporation Code and regulated by the SEC with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited to the amount of their share capital. It consists of at least 5 to 15 incorporators; each of whom must hold at least one share and must be registered with the SEC.
A corporation can either be a stock or non-stock company, regardless of nationality. A stock corporation is a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held. A non-stock corporation is a corporation organized principally for public purposes such as charitable, educational, cultural or similar purposes and does not issue shares of stock to its members.
If ownership of the company is 60% Filipino and 40% foreign-owned, is considered a Filipino corporation; if more than 40% is foreign-owned, then it is considered a domestic foreign-owned corporation.