The Corporation Code provides that a corporation takes on life upon the issuance by the Securities and Exchange Commission (“SEC”) of its Certificate of Incorporation. Though the SEC is also authorized by law to recognize the existence of partnerships and individuals, the term “Certificate of Registration” is generally used to refer to the recognition by the SEC of the existence of juridical entities other than corporations (i.e., partnerships). Aside from the recognition of its creation, the Certificate of Incorporation of a corporation contains significant information relating to the validity or efficacy of its incorporation, e.g., the corporate name, the principal address of the corporation, the name and addresses of its incorporators, the name and address of its directors, as well as information relating to the nature of its operations from which the purpose or purposes of the corporation may be determined.
Under the Philippine legal system, there are four (4) general classifications of business entities; one of which is the corporation. Article 145 of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) (the “Corporation Code”) defines the corporation as 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. A corporation is an entity separate and distinct from its stockholders and from other entities. In short, it is a form of juridical personality separate from its individual stockholders. As a result of this separation between its stockholders and itself, the liability of the stockholders is limited to the extent of their shareholding in the capital stock of the corporation.
Limited Liability Company
The Limited Liability Company or Special Investors Residence Visa (SIRV) Corporation is a local business owned by foreign investors. It is designed principally for small and medium-sized businesses in the retail, vocational training and education services, consultancy services, manufacturing, agriculture, and educational and medical institutions. In certain capacities to some foreign investors, it provides a local identity with benefits such as leasehold rights, tax privileges, residence allowances for foreign employees, and opportunities for filipinization in the future. The main purpose of the SIRV program is to attract foreign investment, stimulate economic development, create jobs, and transfer new skills, technology, and knowhow to the Philippines.
Organizations searching for opportunities for investment in the Philippines frequently ask whether there is the possibility to incorporate an entity in the form of a limited liability company. Several years ago, this question could have been answered in the negative. Today, investors in sectors like retail, consultancy services, vocational training and education services, manufacturing, agriculture and other similar industries, can incorporate a company under the special legislation provided by the Philippines. Such a company is an excellent option for many organizations since it is basically a local company owned by foreign investors. The benefits of having such a legal identity in the Philippines are various and certain government regulations are softened in the case of specific industries.
Differences between LLC and LLC
The personal independence from the personal wealth of the business owner from the LLC is an essential personal advantage of a single-member LLC of a nature between a sole proprietorship. The proprietorship requires personal property to guarantee business loans; his personal property is threatened by a lawsuit against his business, and plans to integrate or sell the companies involved in the business. In contrast, the business owner of the single-member LLC is not responsible for business loans, its obligation to enter into the business of the LLC is limited. The house could not be confiscated due to a lawsuit against a single-member LLC. However, it is also determined that even small companies express the limited liability of their company through guarantees to get corporate credit and then must guarantee corporate property or personal property.
Differences between a single-member limited liability company and a sole proprietorship. The sole proprietorship can be created and dissolved anytime, with the businesses and/or industrial offices, compared with the single-member LLC which is required upon a notification to the Securities and Exchange Commission and with the Kurtz’s office if the place of the single-member LLC main office commerce. The most significant advantage of a sole proprietorship is that it can be easily created and dissolved, but all its tax advantages are seriously reduced. When the single-member LLC is dissolved, the transfer of assets will result in taxes. The formation of the sole proprietor by the administrator is an ore tech bureaucracy process; the creation of a separate financial system (accounting separation) is not required. Creating this separation and reporting requirement is essential for growth. Unauthorized separation requires clear business separation and accounting and financial indicators. It is critical, so your reports are accurate, even if your income and expenses are not enough to surpass it with your business. A single member of the LLC, on the other hand, is a single entity for all purposes. A limited liability corporation (LLC) is a business structure that combines the limited liability protection of a corporation with the flexibility and tax benefits of a partnership or sole proprietorship.
Formation requirements
A partnership, for example, may be formed without any necessity for government regulation. The law allowing such formation of partnership is basically governed by the provisions of the Civil Code on property and property relations. Article 1767 provides that “By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.” The Code further provides any rules that the partnership may take the form of “a partnership of all present property” or “a partnership of all present property, the property which hereafter acquired by one or both of the parties belonging to them in common in proportion to their respective contributions” or “an industrial partnership whereby the capitalist shall receive the other part of the profits with a specific period, whether or not he is also a capitalist.”
The Corporation Code provides that “any five or more persons, all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation. No corporation is allowed to hold a license to incorporate as a stock corporation unless at least 25% of its authorized capital stock has been subscribed. The minimum subscription per incorporator-shareholder must be fully paid a minimum of 25% of the subscribed capital, the balance of which to be paid on a specific date. A stock corporation not complying with the required minimum paid-up capital shall not be allowed to operate. If such stipulation is not indicated in the articles of incorporation, such failure to comply with the prescribed paid-up capital shall be a ground to suspend the right of the corporation to its corporate franchise or to forfeit such franchise in the manner provided by law. A limited liability company (LLC) offers its owners limited liability protection while allowing for pass-through taxation, flexibility in management structure, and simplified administrative requirements compared to a corporation.
Tax implications
The most advantageous factor in operating a business in the Philippines is the existing tax treatment. For one, income derived under the Tax Code continues to be imposed only once regardless of the flow of income within the business entity. Income received in the form of dividends from a domestic corporation which has already been subjected to the normal income tax on its income is exempt from tax in the hands of its shareholders. Similarly, partners in the partnership who receive a distributive share in the partnership which has already been subjected to the normal income tax on its own income are exempt from tax on their distributive share. Under the Tax Code, the act of engaging in a trade, profession, or business within the Philippines gives rise to an impost income tax on the net taxable income that may be derived from the exercise of said source of income.
