Company Formation in the Philippines

A person or entity wanting to invest in the Philippines can do so thru a single proprietorship, corporation or partnership.

A single proprietorship does not have a separate and distinct personality from its owner, unlike a corporation or a partnership. This means that a suit against the single proprietorship is a suit against its owner and consequently, the liability of a single proprietorship is the liability of its owner. This is different with a corporation where a suit or liability against the corporation is not necessarily a suit or liability against its stockholders.

Registration of a single proprietorship can be as simple as registering a business name with the Department of Trade and Industry, which can only take an hour, while that for a corporation or a partnership is done with the Securities and Exchange Commission, which can take a few days. Basically, both the DTI and the SEC processes will start with choosing a company name that would be able to pass screening. Then with the SEC, the Articles of Incorporation and by-laws have to be filed. DTI and SEC registrations can be done online.

Of course, after the DTI and/or SEC registrations, the entity has to be registered with the Bureau of Internal Revenue, where it will be assigned a Tax Identification Number (TIN) and the local government unit with the acquisition of a business permit. Each will normally take a few days to a week.

Foreign investments are governed principally by the Foreign Investments Act (R.A. 7042) which is a law regulating foreign investments in the Philippines. The act allows foreign investors to invest up to 100% equity in domestic market enterprises, but also sets restrictions. This was amended on March 2, 2022, by R.A. 1167 which aim to promote and attract foreign investments by allowing international investors to set up and fully own domestic enterprises (including micro and small enterprises) in the Philippines.

Common questions from foreign investors is whether or not they are allowed to engage in retail trade, which is governed by the Retail Trade Liberalization Act of 2000 (R.A. 8762), which was amended on December 10, 2021 by R.A. 11595. This amendment made it easier to foreign investors to engage in retail trade by lowering the minimum paid-up capital from 2,500,000 USD to P25,000,000.00 and decreased the minimum investment per physical store to 250,000 USD or about P10,000,000.00. Prior to R.A. 8762, retail trade was principally limited only to Filipinos.

Another feature of R.A. 11595 was the removal of the Certification of Pre-qualification that was formerly issued by the Board of Investments (BOI) before the retail company can engage in business.

What this means that a foreign fast- food chain similar to our Jollibee and McDonald’s can invest in the Philippines and open its branches, almost immediately, without the need of any local equity, with the only restriction that it cannot buy land.

An amendment to the Corporation Code of the Philippines makes it even easier for foreigners to form corporations. Unlike before where a corporation had to have a Board of Directors with a minimum of 5 members, the Board may now be composed of less than that number. In fact, a one-person corporation (OPC) can now be formed.

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