Part 1: Register the Business Organization
Starting a business in the Philippines can be a bit confusing because of the many legal requirements necessary before a business can operate. This series of article summarizes the essential legal requirements that are necessary for starting a business.
The first step is to register the business with the appropriate government agency depending on the type of business organization one wants to establish.
1. Sole proprietorship—register with the Department of Trade (DTI).
A sole proprietorship is the simplest type of business organization that may be established by a person, called the sole proprietor. Unlike a partnership or corporation, which is a business organization that has a separate existence from the partners in a partnership or stockholders in a corporation, the sole proprietorship does not have a separate existence from the business owner.
In a sole proprietorship, the business is an extension of the business owner. Thus, the assets and liabilities of the sole proprietorship are considered the assets and liabilities of the business owner.
2. Partnership—register with the Securities and Exchange Commission (SEC).
A partnership is a business organization whereby two or more persons agree to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. (Article 1767, Civil Code of the Philippines)
The partnership has an existence separate from that of each of the partners. (Article 1768)
Unlike a corporation, a partnership does not have shares of stock, which are the basis for the distribution of the profits (i.e., dividends) among the stockholders. Instead, in a partnership, the losses and profits are distributed in accordance with the agreement of the partners. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of an agreement, the share of each partner in the profits and losses shall be in proportion to what he has contributed to the partnership, but the industrial partner shall not be liable for the losses.(Article 1797)
As for the profits, the industrial partner shall receive such profits as may be just and equitable under the circumstances. If the industrial partner contributed capital, he shall also receive a share in the profits in proportion to his capital. (Article 1797)
3. Corporation—register with the SEC
A corporation is “an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.” (Section 2, Corporation Code of the Philippines)
The corporation has an existence separate from that of its stockholders.
Corporations may be classified as either stock or nonstock corporations. Stock corporations have capital stock divided into shares of stock, which may be issued to the stockholders. Stock corporations are allowed to distribute dividends to the stockholders on the basis of the number of shares of stock owned by them. Nonstock corporations do not have capital stock divided into shares of stock and are not allowed to distribute dividends to the members. (Section 3)
A stock corporation is the appropriate type of corporation for the purpose of operating a business.
In the next article, we will discuss the necessary permits related to starting a business.
Originally published at foundersguide.com
