When planning to start a business in the Philippines, one crucial decision you’ll need to make is choosing the right business structure. The legal structure you choose will impact many aspects of your business, including taxation, liability, ownership succession, and more.
This guide will walk you through the most common business structures in the Philippines to help you decide which one suits your business best.
Sole Proprietorship
Sole proprietorship is the simplest form of business structure. As the name suggests, it’s a one-person show, with one individual owning and running the business. The owner and the business are considered as one entity for tax and liability purposes, meaning the owner is personally liable for all the business’s debts and obligations.
Partnership
In a partnership, two or more individuals share ownership and contribute to all aspects of the business, including money, property, labor, or skill. Each partner shares in the profits and losses of the business.
In a **General Partnership**, all partners share in the management and each is personally liable for all the debts and obligations of the partnership. A **Limited Partnership**, on the other hand, includes both general partners, who manage the business and are personally liable, and limited partners, who contribute only capital and share in the profits but do not participate in the running of the business.
Corporation
A corporation is a separate legal entity from its owners. Corporations can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. The most significant aspect of a corporation is limited liability, meaning the owners are not personally liable for the corporation’s debts.
Stock Corporations have capital stock divided into shares and distribute dividends to the shareholders. In contrast, Non-Stock Corporations do not issue shares or distribute dividends to its members.
Cooperative
A cooperative is an association of individuals with a common interest who voluntarily join together to achieve a common social or economic goal. Unlike other business structures, cooperatives are built around the concept of mutual assistance.
Foreign Offices
For foreign businesses looking to operate in the Philippines, there are a few structures to consider:
Branch Office: This structure carries out the business activities of the head office and derives income from the Philippines. It is required to remit its entire profit to its head office.
Representative Office: This office deals directly with the clients of the parent company but does not derive income from the Philippines and is fully subsidized by its head office.
Regional Headquarters (RHQ): A RHQ of multinational companies acts as a supervisory, communications, and coordinating center for its affiliates, subsidiaries, or branches in the Asia-Pacific Region. It does not earn or derive income from the Philippines.
Regional Operating Headquarters (ROHQ): An ROHQ performs qualifying services to its affiliates, subsidiaries, or branches in the Philippines, for which it receives compensation.
Making the Right Choice
Choosing the right business structure for your situation will depend on your specific business needs and goals. Consider factors such as the nature of your business, your long-term plans, your potential liability, and the tax implications of each structure. It’s always a good idea to seek legal or professional advice when setting up a business in the Philippines to ensure you’re making the best decision for your venture.
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You’re always welcome to chat with us to get the latest and most reliable information and aid you in setting up your new business. Here’s to your exciting adventure of setting up a business in the Philippines. Enjoy the ride!
