Company Formation in the Philippines: Options for Company Incorporation

Local and foreign investors can conduct business in the Philippines by registering any of the following business entities: sole proprietorship, partnership, corporation or cooperative. If you want to register a corporation, you can choose between two options: incorporating a new domestic company or obtaining a license for a foreign company to operate in the Philippines.

Each type of business entity has its own incorporation and registration process, paid-up capital requirements, tax obligations, ownership structure, and startup costs. Additionally, the list of government agencies you should coordinate with will vary depending on the type of business entity you want to register.

Types of Business Entities in the Philippines

Investment Vehicle: Corporation

Types:

• Stock Corporation – a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares, dividends or allotments the profits of the business based on equity of shares
  • Domestic Corporation (organized under Philippine laws)
    • 100% Filipino-owned
    • 60% Filipino-owned and 40% Foreign-owned
    • 40.01% to 100% Foreign-owned (subject to certain provisions under Foreign Investments Act)
  • Foreign Corporation (organized under the laws of the corporation’s country of origin)
    • Branch Office
    • Representative Office
    • Regional Area Headquarters (RHQ)
    • Regional Operating Headquarters (ROHQ)
• Non-Stock Corporation – a corporation that neither generates profit nor issues shares of stock to its members, and could have any of the following purposes:
  • Charitable;
  • Religious;
  • Educational;
  • Cultural;
  • Civic service; and
  • Other similar purposes, such as chambers or combinations trade, industry or agriculture

Ownership Structure:

• Domestic corporations are required to be formed by at least five (5) but not more than fifteen (15) incorporators who must have individual subscriptions of at least one (1) share in the company; incorporators are stockholders or members mentioned in the Articles of Incorporation as originally forming and composing the corporation and are signatories thereof
• For a foreign corporation to be granted a License to Operate in the Philippines as a business entity, it is required to appoint one (1) resident agent who shall accept all summons or legal processes served, arising out of any business or transaction which occurred in the Philippines, to the corporation

Government Agencies Involved in the Registration Process:

• Securities and Exchange Commission (SEC) (for the creation of juridical entity of the corporation)
• Bureau of Internal Revenue (BIR) (for corporate taxation)
• Local Government Units (LGUs) of the location where you want to establish your business
  • Barangay Hall
  • Mayor’s Office
  • Business Permit and Licensing Office (BPLO) of the Municipal/City Hall
• If employing individuals, a corporation should register with the following agencies:
  • Social Security System (SSS)
  • Philippine Health Insurance Corporation (PhilHealth)
  • Home Development Mutual Fund (Pag-IBIG Fund)

*See table below for companies requiring endorsements from other government agencies

Investment Vehicle: Partnership

Types:

• General Partnership – a business arrangement where two or more people, usually referred to as general partners, agree to share among themselves all assets, profits, and financial and legal liabilities of the business; the general partners can take part in the daily management of the partnership and each has unlimited liability for the actions of the partnership, including the actions of other partners
• Limited Partnership – a type of partnership where the partners, usually referred to as limited partners, are only held liable to the extent of their investment in the partnership; unlike general partnerships, the limited partners have no management authority or input towards the operations of the company

Ownership Structure:

• Can be formed by two (2) or more individuals who agree to do business together for profit

Government Agencies Involved in the Registration Process:

• SEC or Department of Trade and Industry (DTI) (for the creation of juridical entity of the partnership; registration depends on the capital of the corporation, if the capital is PHP 3,000.00 or more, then it should be registered with the SEC; conversely, if the capital does not exceed the aforementioned amount, then it should be registered with the DTI)
• BIR (for corporate taxation)
• LGUs of the location where you want to establish the partnership
  • Barangay Hall
  • Mayor’s Office
  • Business Permit and Licensing Office (BPLO) of the Municipal/City Hall
• If employing individuals, a partnership should register with the following agencies:
  • Social Security System (SSS)
  • Philippine Health Insurance Corporation (PhilHealth)
  • Home Development Mutual Fund (Pag-IBIG Fund)

*See table below for companies requiring endorsements from other government agencies

Investment Vehicle: Sole Proprietorship

Types:

• Filipino-owned Sole Proprietorship
• Foreign-owned Sole Proprietorship – contrary to common belief, foreign entities can set up sole proprietorships in the Philippines as long as they meet the minimum capital requirement of US$ 200,000.00 and their proposed business activities do not fall under the areas of investment listed in the Foreign Investment Negative List (FINL) as partially or wholly restricted to foreign entities

Ownership Structure:

• Owned by a single individual who has full control and authority over the business, referred to as the sole proprietor and exclusively owns all assets and profits of the business; he or she is also personally liable for all the debts and losses that the business might incur

Government Agencies Involved in the Registration Process:

• Bureau of Trade Regulation and Consumer Protection of the DTI (for reservation of business name and creation of juridical entity of the sole proprietorship)
• BIR (for corporate taxation)
• LGUs of the location where you want to establish the sole proprietorship
  • Barangay Hall
  • Mayor’s Office 

*See table below for companies requiring endorsements from other government agencies

Investment Vehicle: Cooperative

Types:

• Credit Cooperative – promotes and undertakes savings and lending services to create funds and grant loans for productivity and financial assistance among its members
• Consumer Cooperative – primary purpose is to procure and distribute commodities to both members and non-members
• Service Cooperative – engages in service-oriented activities such as medical, dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication, and other such activities
• Producers Cooperative – undertakes joint production, for agricultural or industrial purposes
• Cooperative Bank – organized for the primary purpose of providing a wide range of financial services to cooperatives and their members
• Multi-Purpose Cooperative – combines two or more of the business activities listed above

Ownership Structure:

• Unlike corporations and partnerships, cooperatives have collective, democratic ownership and are run by an electoral system where all members elect officers through a one-member-one-vote principle

Government Agency Involved in the Registration Process:

• Cooperative Development Authority (CDA) (for the creation of juridical entity of the cooperative)

Regulated Business Sectors in the Philippines

Listed below are business sectors in the Philippines that require endorsement from specialized government agencies: