When your paycheck prompts a look of frustration, it may be time to put up a business instead, you’re just like the thousands of Filipinos who have done same. Based on the Philippine Statistics Authority’s 2016 List of Establishments (the latest data available), published on the Department of Trade and Industry (DTI) website, the Philippines had a total of 915,726 businesses that year. Of these, 99.57 percent were micro, small and medium enterprises (MSME).
If you’re planning to join the bandwagon, it would be helpful to know what kind of business you can set up and how you can register it.
Businesses According to Ownership
There are three kinds of businesses in the country based on ownership:
Sole Proprietorship
A sole proprietor business is a company owned and registered by one individual (known as the proprietor), who has full authority to make decisions for the business and has total control of its operations. The proprietor owns the business’s assets and assumes responsibility for all liabilities. Proprietors get all the profits of the business but also shoulder any losses on their own. The proprietor and the business are considered one taxpayer and shares the same taxpayer identification number (TIN).
Partnership
A partnership is owned by two or more individuals (partners) and is considered a juridical person under the Civil Code of the Philippines. A juridical person is an organization that is not an individual natural person but is recognized as a legal person with rights and duties authorized by law. Partnerships are either general or limited.
In a general partnership, the partners have unlimited liability for the obligations or debts of their partners. In a limited partnership, the partners’ liability is only up to the value of their capital contribution. If your partnership has a capital of more than P3,000, you need to register it with the Securities and Exchange Commission (SEC). When it comes to income tax computations, partnerships are considered corporations.
Corporation
Multiple shareholders own a corporation; these shareholders are either natural or juridical persons. Its identity is separate from its individual or juridical shareholders. It has a minimum of 15 incorporators, with at least one share each. The minimum paid up capital for a corporation is at least P5,000. Shareholders’ liability is limited only to their capital contribution amount.
Corporations in the Philippines are either stock or non-stock types. Stock corporations have capital stock divided into shares. The business’s dividends and profit allocations are distributed to shareholders based on their shares. Nonstock corporations are formed only to carry out public functions as a legal entity, and they do not issue shares of stock to their members. These are typically charities, foundations, and cultural and educational institutions.
Foreign Corporation
This type of corporation can be created in the Philippines based on foreign laws. It can either be a representative office, branch office, regional headquarters or regional operating headquarters.
The Representative Office is fully subsidized by its head office and does not earn from the Philippines. It exists mainly to interact with clients of the parent company to inform, communicate, promote, and do quality control. It has a required initial minimum inward remittance to cover operation costs.
In contrast, the Branch Office derives income from the Philippines and carries out the head office’s business activities. It has a minimum paid up capital of US$200,000, which can be reduced if the corporation brings in advanced technology or creates jobs for at least 50 people.
The Regional Headquarters (RHQ) performs supervisory, coordination, and communication roles for branch offices, subsidiaries, and affiliate offices in the Asia Pacific region. The regional headquarters of multinational companies assume an administrative position for international trade purposes. It doesn’t derive income locally and doesn’t directly manage branch offices or subsidiaries. It has a required capital amounting to US$50,000 annually.
Meanwhile, the Regional Operating Headquarters (ROHQ) conducts everything for branch offices, affiliates, and subsidiaries. Their functions include business planning and coordination, general administration and operational planning, procurement, finance advisory services, sales and marketing, training and staff management, logistics, R&D and product development. It earns locally and has a required capital of US$200,000.
Registering Your Business
To set up a sole proprietor business, you must register a trade name with the Department of Trade and Industry’s (DTI) NCR or regional offices and apply for a TIN. DTI’s online registration tool is not currently functional.
To set up a partnership with a capital share of P3,000 and below, you can register your business with DTI.
To establish a corporation, you must register the business with the SEC, under the Corporation Code. The SEC regulates all corporate-type business entities.
Types of Business According to Industry
There are three types of business in the Philippines based on industry or nature of business:
Manufacturing companies engage in the conversion of raw materials to finished products, including relevant factors, like labor and overhead. They sell directly to consumers or through resellers and retail companies. If you want to be a manufacturer of wines and soft drinks, cars, electronics, drugs or other medical products, this will be your industry.
If you want to buy products from manufacturers or other businesses and sell them to consumers, you are entering the merchandising business. Merchandising companies keep an inventory of goods as their assets, and they generate income through price markups on their products for sale. Retailers and trading firms fall under this category. Examples of merchandising businesses are department stores or malls, groceries, wholesale distributors, vehicle dealerships, and real estate dealers.
The service industry is, by far, the largest business sector in the Philippines. Unlike the merchandisers, the service companies provide services and intangible goods and get their profits from labor or services rendered for individuals, other companies, or the government. Examples of service companies are hotels and restaurants, entertainment providers, professional practices in law, accounting, engineering, architecture, business consulting and customers service; airlines and tour operators, telecoms, medical and dental, BPO firms, and others.
Some businesses, however, can’t be classified under these three. These other businesses are typically involved in exploring or producing raw and natural materials. Mining companies, agriculture companies, and natural gas or oil exploration are examples of this sector.
The government has made setting up a company easy for the business-minded ordinary person. Nothing stops you now from moving into the entrepreneurial world from an 8 to 5 job — other than your hesitation. What are you waiting for? Sign up your business today.