Corporations in the Philippines

TagsLarge and listed companiesPrivate and individualsClient referenceEconomics+2

A corporation in the Philippines is defined as an artificial being created by law. It has the right of succession of powers, attributes, and properties expressly authorised by statute or incidental to its existence

They are commonly comprised of a group of individuals that have been given authority by the state to act as a single legal entity. They are created when it has been incorporated by a group of shareholders who then hold their stocks in pursuit of a common goal.

Corporation ownership structure

In most cases, businesses have multiple owners, and the nature of their ownerships and how much influence they can influence the company can often significantly differ from one another. Sometimes the owner can be an individual, but it can also be another business.

Furthermore, the rights of these owners can be split between two groups:

1.) Economic rights

The rights to receive the profits generated by the business.

2.) Management rights

The rights to influence the appointment of corporate officers.

Types of corporations in the Philippines

Corporations in the country can be separated into three different types, with a few subtypes under a few of them. They can differ a few ways: how they divide their stock, how many shareholders they have, and how much of them are owned by a foreign or domestic investor.

1.) One Person Corporation (OPC)

Becoming an OPC is regarded as the ideal corporate entity for foreign investors operating in the Philippines. The central aspect that distinguishes itself from other corporate types is that it has only one shareholder, who is also both the company president and director.

This one shareholder does not need to be native to the Philippines, so foreign investors may establish this type of corporation if they want total ownership of their business.

However, the acting OPC needs a corporate secretary legally considered a Filipino citizen. They also need to appoint several officers within 15 days of establishing the OPC.

Furthermore, OPCs are calculated to have less complicated issues when compared to other business structures like sole proprietorship and partnerships since a foreign OPC can claim limited liability for its company, potentially avoiding future legal problems.

The government will also charge a foreign-owned OPC with a share capital amounting to $200,000, which must be paid before incorporation can be completed. Overall, many sources agree that an OPC is a fantastic introduction point to one of the country’s fastest-growing business ecosystems.

2.) Stock corporation

Stock corporations have their stocks divided into shares; they are distributed to each holder after approval. Let it be noted that the allotments for the businesses’ profits will still be based on the share’s equity.

They are divided into two groups, Domestic Corporations and Foreign Corporations.

I.) Domestic Corporation

This type of stock corporation is a business entity that is fully registered and arranged completely under Philippine laws. They are stated to be the closest local equivalent to a Limited Liability Company, meaning it can incur its liabilities. They are also legally culpable for the payment of their obligations.

II.) Foreign Corporation

A foreign corporation in the Philippines is defined as a corporate entity that operates outside the jurisdiction of where it was initially incorporated. Locally, these corporations are categorised into four branches under the laws of their country’s origin.

A.) Philippine Branch Office

A Branch Office is defined as an extension of a foreign corporation that still performs the services provided by its head office from offshore into the Philippine area.

It shares the same laws and legal personality as its parent company. This means any legal liabilities it incurs will be applied to the head office of its parent company as well. A lot of effort is given to good management and communication to help mediate these issues.

B.) Philippine Representative Office

The Representative Office acts as the local liaison office employed by foreign corporations. It’s commonly used by foreign corporations that want to create a corporate presence in the county while at the same time avoiding any income-generating activities.

Like the branch office, a representative office also has a parent company and a head office. The foreign company it originates from will handle all operating expenses and incur the liabilities of that representative office.

C.) Regional Headquarters (RHQ)

This type of foreign corporation functions as the administrative branch that handles international trading in the Asia Pacific Region (APAC). The caveat is that a corporation can only use it with branches, affiliates, or clients within the APAC region.

It cannot gain income from any source in the Philippines and cannot manage its operations. Like the other branches, any liabilities it gains will be applied to its parent company.

Its main advantage is offering specific incentives, such as financial tax incentives, for its parent company and other branches.

D.) Regional Operating Headquarters (ROHQ)

Like the RHQ, this branch is also an extension of a foreign corporation, and the difference is that the ROHQ is allowed to gain income in the Philippines. It accomplishes this by providing high-quality services towards its head office, affiliates, subsidiaries, or other APAC branches.

These branches can provide business development, logistic services, technical support, and more. Its only restriction is that it cannot give these services to entities outside its affiliates or subsidiaries.

3.) Non-Stock Corporation

These corporations do not generate profit from their services or give their stock members any shares. They are created for a positive civic purpose like charity, religion, education, cultural awareness, and other purposes like trade or agriculture.

Corporation legal fees and capital requirements

A corporation requires completing the following legal requirements and legal fees to be recognised by the appropriate organisations.

TheSecurities and Exchange Commission (SEC) will issue payment fees once you apply for registration; once you go to the bank to pay, evidence in the form of ‘proof of payment’ must be passed either through physical or online means.

Here is a list of all the fees all companies are required to pay:

DOMESTIC CORPORATION

a) Filing fee is 1/5 of 1% of the authorised capital stock or the subscription price of the subscribed capital stock, whichever is higher but not less than P 2,000.00

b) PHP150.00 for registration of Stock and Transfer Book (STB)

c) PHP100.00 for the name verification fee

d) PHP1,000 for the registration of the By-laws

e) PHP30.000 for DST

f) Additional PHP3,000 if under Foreign Investments Act (FIA)

g) PHP400.00 for the STB

ONE PERSON CORPORATION

a) Filing fee is ⅕ of 1% of the authorised capital stock but not less than Php2,000.00

b) PHP100.00 for the name verification fee

c) PHP30.000 for DST

d) Additional PHP3,000 if under Foreign Investments Act (FIA)

BRANCH OFFICE:

- 1% of the actual inward remittance of the corporation converted into Philippine currency but not less than PHP3,000.00