Company Registration in Philippines

Company Registration in Philippines- An Overview

The Philippines is a rapidly growing economy among other ASEAN members in 2022 and is slated to take an upward trajectory. The Philippines have made significant efforts in terms of legislative and regulatory changes to improve the ease of doing business environment. These regulatory changes and the efforts of the Filipino government have attracted locals and foreign business owners to set up their businesses in the Philippines. A person can form a company in the Philippines without being physically present in the Philippines. Hence, companies can be set up virtually with minimum requirements.

This country consists of three main geographic regions: Luzon, Visayas and Mindanao. Manila is considered the largest business hub in the Philippines. Registering a business is quite straightforward in the Philippines, and different business structures can be adopted.

In terms of GDP, the country is showing progressive growth, with the current rate of GDP at 6.6%. Statistics show that the current rate of GDP is constantly rising. The government of the Philippines provides different forms of investment opportunities for foreign entrepreneurs. Hence an investor would want to go for Company incorporation in Philippines.

There are different forms of credit rating agencies present in the Philippines, which contribute majorly to the financial sector and the development of the economy.

Regulatory Authority/ Body for Company Registration in Philippines

The primary regulatory authority for company registration in Philippines is the Securities and Exchanges Commission (SEC).

Types of Business Structures in the Philippines- Company Registration in Philippines

Both local and foreign entrepreneurs have been permitted to set up a company in the Philippines. There are primarily three types of business vehicles in the Philippines. These are sole proprietorship, partnerships and corporations (both domestic and foreign).

• Sole Proprietorship-

A sole proprietorship is operated by a single natural person where the business owner's liability is unlimited. Additionally, the business does not have a separate legal entity of its own and is distinct from its owner.   

• Partnership-

A partnership company is a business that partners create by entering into a contract. Here, two or more partners bind themselves to contribute money, property and industry in the partnership structure with the intention to undertake commercial activities to generate profits that will be distributed among themselves. In the Philippines, a partnership is considered to have a separate legal personality of its own. The partners hold an unlimited liability against the debts and obligations of the partnership.     

• Corporations-

A Corporation in the Philippines is similar to that of an LLC or a Limited Liability Company in other jurisdictions. A foreigner can register a corporation, subject to prevailing laws relating to the corporation's incorporation by foreigners.

Following are the 6 types of companies that a foreign entity can establish in the Philippines. These include:

• Domestic Corporation
• One Person Corporation
• Branch Office
• Representative Office
• Regional Headquarters (RHQ)
• Regional Operating Headquarters (ROHQ)

• Domestic Corporation or Subsidiary

A foreign company can set up an entity in the Philippines in the form of a subsidiary or a domestic corporation. It is a business entity with a separate legal personality from its stockholders. It is similar to the structure of a Limited Liability Company or a Private limited company in other countries.

As per the latest amendments in the Revised Corporation Code and the latest guidelines introduced in the SEC Memorandum Circular No. 16 of the 2019 series, the limit of the minimum number of incorporators required for establishing a Domestic corporation has been reduced from 5 to 2, however, the maximum amount of incorporators have been fixed at 15 only. This allows two-member, three-member and four-member corporations to come into existence.

These incorporators are originally stockholders who need to sign the articles of incorporation. Every incorporator is required to maintain at least 1 share at the time of incorporation. According to the latest amendments, any combination of partnerships, associations, corporations and natural persons can become incorporators to register a domestic corporation which was previously restricted to natural persons only.

The revised Commercial Code does not ask for a minimum capital stock for the stock corporations except in those cases where a separate law has prescribed that. 

• One Person Corporation (OPC)

The Revised Commercial Code and SEC guidelines have also allowed the registration of a one-person corporation (OPC) where only one natural person can start the business, being the single stockholder. This person is the sole incorporator, director and president of the corporation. The OPC’s liability is limited to the extent of assets of the corporation and not extends to the personal assets of the corporation.

A foreigner has been allowed to set-up an OPC, but they are again subject to the Foreign Investment Negative List. The OPC also need to appoint a nominee stockholder and alternate nominee stockholder and put their names in the Articles of Incorporation. These persons shall assume the responsibilities of the OPC if the main person dies. Again, the OPC also needs to appoint a Corporate Secretary or Treasurer within 15 days. The single stockholder can assume the role of treasurer in furnishing a surety bond.

• Branch Office-

Foreign companies wishing to establish their presence in the Philippines can adopt the mechanism of a branch office. This branch office is not a separate legal entity but an extension of its foreign parent company in the Philippines. Hence, the foreign company is responsible for all the liabilities of the company. It is incorporated according to the laws of the foreign land where it has been incorporated.

Foreign corporations are also required to appoint a resident agent who shall receive correspondence on behalf of the branch office from the government departments. This resident agent can be either an individual or a domestic corporation.  

The set-up costs are the same as that of a domestic corporation. If it exports more than 60% of its gross sales, then it can be registered with ₱5,000. The foreign parent company is also required to deposit an annual amount of ₱5,00,000. Further, if the annual revenue of the branch office exceeds the amount of ₱10 million, then the amount of ₱5,000 shall have an annual increase of 2%.  

• Representative Office-

Before making substantial investments in the Philippines, a foreign company can begin by opening a branch office. Although it is an extension of its foreign parent company and its liabilities are met by its parent company only, it does not have permission to generate income within and outside the Philippines.

It is only permitted to act as a liaison office offering marketing and sales support to its parent company, conducting market research, quality control of the products related to the foreign company etc. The minimum capital requirement is $30,000.

It has not been permitted to derive income or offer services to other customers. Further, it cannot avail of tax incentives as well.  

• Regional Headquarters (RHQ)

A Regional Headquarters is an administrative branch of a foreign corporation that has been allowed to inspect, supervise and supervise the activities of the branches, representative offices and affiliates of a corporation around the world. It also acts as a communication centre for all its associates. It has not been allowed to derive income and it has no separate legal entity of its own.

It can train employees, source raw materials, conduct research and development and undertake developmental projects in the Philippines.

Like Representative Offices, an RHQ is required to appoint a resident agent and proof of official business address. The minimum paid-up capital for starting an RHQ is $50,000.

It is not allowed to manage the operations of its parent company's branches, affiliates and affiliates. It cannot derive any income or offer services to third parties. It can solicit any business with the clients of its parent company in the Philippines. Its parent company is also prohibited from undertaking any of these activities through its RHQ.   

• Regional Operating Headquarters (ROHQ)

The Regional Operating Headquarters (ROHQ) is an extension of its foreign parent company, which has been allowed to generate income by performing the permitted services to its head office, subsidiaries, branch offices and other affiliates around the world. It is not a separate legal entity.

Like RHQ, it is also required to appoint a resident agent and proof of official business address. $200,000 is the minimum paid-up capital required for setting up an ROHQ. Apart from serving its parent company's and its affiliates needs, it cannot solicit any business with any other entity by performing any qualifying services for them.  

Documents for Company Registration in Philippines

The following Documents are required for company registration in Philippines:

• Application for registration
• Copy of the Document (Board Resolution, Director’s certificate, Secretary’s certificate, or equivalent Document) duly authenticated by a Philippine consulate or with an apostille affixed to that authorising the company to invest in the corporation to be formed and the authorising a designated signatory on behalf of the corporation.
• Notarised Articles of Incorporation
• Verification Slip of the company’s name (the applicant is required to reserve the company’s name before starting with the registration process)
• Tax Identification Number (TIN) of the Filipino incorporators, directors and officers
• The tax Identification Number (TIN) of the principal and signatory (or passport number in case of foreign investors) should be mentioned in the Articles of Association.
• Valid IDs of the incorporators, directors and officers
• Proof of the registered office address in the form of a contract of lease or certificate of land title

Pre-Requirements for Company Formation in Philippines

The following pre-requirements need to be fulfilled before initiating the process of company formation in the Philippines:

1. Set-up requirements

Every domestic corporation needs to have at least 2 and a maximum of 15 incorporators or stockholders. These stockholders must be holders of at least one share of each of the capital stock. The majority of these incorporators should be residents of the Philippines only.

Proof of official business address is also required for registering with the Bureau of Internal Revenue (BIR) and other local government units. The recent amendments have also made provisions for adopting an official virtual address during the registration process and transferring to the physical official address after the registration has been concluded.

2. Appointment of corporate officers

All domestic corporations in the Philippines are required to appoint the following three officers for registration purposes:

• President
• Treasurer
• Corporate Secretary

The position of President can be held by a foreign national not residing in the Philippines. However, such a person must be a director and holder of at least one share of the capital stock.

Again, the Treasurer position can be held by a foreign national. However, such a person should be resident of the Philippines.

The position of Corporate Secretary must be held by a person who is a citizen of the Philippines and must be a resident in the Philippines only. 

3. Minimum Capital Requirements

Domestic Corporations having 100% Filipino ownership have a minimum capital requirement of ₱5,000 or $100. This requirement applies to a domestic corporation with at least 60% Filipino ownership and 40% foreign ownership.

Where the foreign ownership in the domestic corporation is sought to be more than 40%, then the minimum capital requirement is $200,000. An exception has been created for those corporations that are involved in the activities related to the advanced technology or employ at least 50 direct employees.

4. Restrictions

The Filipino government regularly takes out a negative list called the Foreign Investments Negative List, which contains certain areas of the economy where domestic corporations with foreign ownership are barred from participating in the business.   

Procedure for Company Registration in Philippines

The procedure for company registration in Philippines is as follows:

• Online Name registration with the Philippines SEC
• Preparation and gathering of the abovementioned Documents for submission to SEC
• Obtaining permits and licenses
• Registration with the BIR
• Registration with several government agencies 

1. Name Registration with the SEC

The first step to be followed in registering a corporation is selecting and reserving the desired name for the corporation with the SEC. The applicant is required to reserve the desired name with the Securities and Exchange Commission of the Philippines.

2. Preparation and gathering of the abovementioned Documents for submission to SEC     

The applicant should then prepare and gather the required Documents for submission with the Securities and Exchange Commission of the Philippines. The Documents for submission have been mentioned above.  

3. Obtaining permits and licenses

The applicant must also obtain a number of licenses and permits from various government departments and agencies before commencing the business activities. Permissions must be sought from the local government units where the corporation shall be located. These include:

• Barangay Clearance
• Mayor's Permit
• Business to Operate

4. Registration with the BIR

Before commencing with the business operations, the corporation must be registered with the Bureau of Internal Revenue (BIR) and obtain the following:

• BIR Certificate of Registration
• Certificate of Registration of Books and Accounts
• Cash Register Machine (CRM) or Authority to Print Receipts/ Invoices (manual receipts) or Point of Sale Machines (POS)

5. Registration with several government agencies

In case the domestic corporation wants to hire employees, it needs to get itself registered as an employer with the following government agencies:

• Social Security System (SSS)
• Department of Labour and Employment (DOLE)
• Home Development Mutual Fund (Pag-IBIG Fund)
• Philippines Health Insurance Corporation (philHealth)

After incorporation of the company, all foreign investors, be they natural or juridical persons, are required to obtain the Tax Identification Number (TIN) after incorporation. This TIN is supposed to be indicated in the General Information sheet filed with the SEC.