Republic Act No. 11232 or the Revised Corporation Code of the Philippines now allows for the registration of a simplified version of a corporation.
Currently, the majority of corporations registered in the Philippines use nominee incorporators and directors. The new legal entity called One Person Corporation (OPC) will now allow for a sole shareholder, thus eliminating the need for nominees.
Many of the larger corporations in the Philippines will not do business with a Sole Proprietorship. The OPC erases this disadvantage while also including the benefit of limited legal liability.
Who Can Register an OPC
Only a natural person, trust, or an estate may form a One Person Corporation.
Who Cannot Register an OPC
Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and -controlled corporations may not incorporate as One Person Corporations. A natural person who is licensed to exercise a profession may not organize as a One Person Corporation for the purpose of exercising such profession except as otherwise provided under special laws.
Cover Sheet, Articles of Incorporation, written consent documents from Nominee and Alternate Nominee
By-laws are not required.
The single stockholder shall be the sole director and president of the One Person Corporation. A treasurer and corporate secretary are also needed. In the case that the president also acts as treasurer, s/he shall give a surety bond to the SEC.
The president may not assume the role of corporate secretary. Both the treasurer and corporate secretary must be residents of the Philippines. The corporate secretary shall be a Filipino citizen.
Roles Played by Nominee and Alternate Nominee
The single stockholder shall designate a nominee and an alternate nominee who shall, in the event of the single stockholder’s death or incapacity, take the place of the single stockholder as director and shall manage the corporation’s affairs.
In case of death of the single stockholder, the nominee will manage the corporation only until the heirs designate his replacement.
A One Person Corporation shall indicate the letters “OPC” either below or at the end of its corporate name.
An Ordinary Corporation may be converted to an OPC, and vice-versa.
The Bureau of Immigration (BI) is imposing stricter requirements and procedures in issuing special work permits (SWP) and provisional work permits (PWP) to foreigners intending to work in the country.
According to BI Commissioner Jaime Morente, the Bureau will now require foreign applicants to submit additional documents before they are issued work permits.
Morente also said that the BI will see to it that no work permit will be issued to aliens who will be employed as construction workers, cashiers, janitors, carpenters, and other blue-collar jobs. Professions classified as regulated by the Professional Regulation Commission (PRC) will also not be allowed without the approval of the PRC.
“This is to ensure that these work permits are issued only to aliens whose jobs could not be performed by Filipinos,” the BI chief said.
Morente said that the new rules were issued to address the reported increase in the number of foreigners employed in the country to the alleged detriment of Filipino workers.
“These new rules are meant to protect the interest of local workers, as we have observed that in the past, foreigners may abuse their permits and take away jobs from our kababayans,” he stressed.
Among the requirements that work permit applicants will submit are: validity of stay as tourists; address, existence, nature of business, and financial viability of petitioning company; and SEC and other government licenses to operate.
Only authorized BI officers at the main office and alien control officers in the bureau’s field offices may approve or disapprove applicants for SWP and PWP.
DOLE New Rules
For the issuance of Alien Employment Permits (AEP) DOLE now requires that a company have either 50 Filipino employees and PHP5,000,000 in paid-in capital, PHP10,000,000 in paid-in capital. This does not apply to IT Enterprises registered with PEZA.
Dayanan Business Consultancy’s accredited visa consultants are available to assist with all your visa applications.
The SEC after having sent out more than 300 Show Cause Letters twice to corporations operating as lending companies without having obtained Certificates of Authority (Secondary License).
Section 4 of R.A. 9474 states that “xxx No lending company shall conduct business unless granted an authority to operate by the SEC”.
84 out of the 300 letters were returned to sender, which has prompted the SEC to suspend for 60 days those 84 lending companies for failure to respond to the Show Cause Letters. If during the suspension period, the SEC has still not heard from those lending investors, proceedings for the revocation of their Certificates of Registration (Primary License) with the SEC shall be implemented.
R.A. 9474 was approved on 22 May 2007 and one year after the effectivity of the Act or on 12 June 2008, all persons and entities engaged in lending activity should have secured their Certificates of Authority.
Director Justina F. Callangan, of the SEC’s Corporate Governance and Finance Department, tasked to regulate lending companies, explained that R.A. 9474 was approved on 22 May 2007 and one year after the effectivity of the law or on 12 June 2008, all persons and entities engaged in lending activity should have secured their corresponding CAs. She underscored the fact that said entities have been given more than sufficient time to comply with the law, hence, their continued noncompliance warrants their suspension.
“The Commission is one with the President in adopting a tough stance against illegal lending that is why it is pursuing with much vigor all those engaged in it”, Director Callangan added.
Aside from suspension, per Section 12 of R.A. 9474, a fine of not less than Ten Thousand Pesos (Php 10,000.00) or imprisonment of not less than six (6) months but not more than ten (10) years or both, await those who violate the law through, among others, failure or refusal to incorporate and obtain a license from the SEC to engage in lending.
April 06, 2017
SEC SUSPENDED ADDITONAL 20 LENDING COMPANIES
The Securities and Exchange Commission suspended the certificates of registration as corporations of additional 20 lending companies which failed to obtain a Certificate of Authority to Operate (CA) as a Lending Company required under Republic Act No. 9474 or the Lending Company Regulation Act of 2007.
Emmanuel F. Piñol Secretary of Agriculture posted on his facebook page on January 10, 2017 that President Duterte ordered the arrest and deportation of foreigners engaged in 5 – 6 money lending.
5 – 6 money lending; are small loans given to small business who cannot obtain bank loans as they are unable to provide collateral. 5 – 6 loans interest rates are usually in the range of 20% a month.
“They are violating Philippine laws by indulging in a money-making business without the necessary permits,” President Duterte said.
Indian national are prominent 5 – 6 money lenders and President Duterte has asked Foreign Affairs Secretary Perfecto Yasay, Jr. to inform the Indian Ambassador of his decision to stop the usurious lending scheme in the Philippines.
Foreigners of other nationalities and Filipinos are also involved in illegal money lending schemes.
Justice Secretary Vitaliano Aguirre announced that foreigners lending money without permits may be arrested even without a warrant of arrest as they’re operating illegally without permits and licenses and therefore are committing a crime.
Following these announcements, there has been a surge in Lending Investors registration with the SEC as people are scrambling to avoid the crackdown on illegal money lenders in the Philippines.
Money lending is highly regulated in the Philippines. Lenders must incorporate as a Lending Investor and obtain a secondary license from the SEC.
Every business whether a corporation or partnership registered with the SEC or a sole proprietorship registered with the DTI is under the obligation to immediately obtain business permits in the municipalities where they operate. Corporations whether PEZA registered or not operating without the necessary business permits will incur fines, penalties or closure from the BIR or City Hall.
Registration is required for every separate or distinct establishment or place of business including facility types where sales transactions occur and warehouse where inventory of goods for sale are kept, and must be obtained before commencement of business and payment of any tax due.
Failure to Register
– Fine of not less than P5,000 but not more than P20,000 and imprisonment of not less than 6 months but not more than 2 years.
a. Cities 20,000 b. 1st class municipalities 10,000 c. 2nd class municipalities 5,000 d. 3rd class municipalities 2,000
The above are just a few of the penalties that the BIR may impose.
None registration with City Hall has its own penalties;
Makati City Penalty example: SEC. 3A.11. Penalty – Any violation of the provisions of this Article shall be punished by a fine of not less than One Thousands Pesos (P 1,000.00) nor more than Five Thousands Pesos (P 5,000.00), or imprisonment of not less than one (1) month not more than five (5) months, or both, at the discretion of the Court.
The above does not includes a surcharge of 25% for late payments and a 2% monthly interest on the unpaid taxes, fees or charges including surcharges.
The documentation required varies according to the municipality, below are listed :
– Barangay Clearance/Permit for the new year – Previous Year’s Business Permit – Financial Statement/ Income Tax Return for the preceding year – Latest Community Tax Certificate – Contract of Lease/ Lessor’s Permit – Comprehensive General Liability Insurance – List of Company Employees with Medical Certificates
Documentary requirements may vary from year to year, we recommend that you check for changes before filing your business permit renewal with City Hall.
Annual Mayor’s Permit Fees (business tax) vary according to the nature of the company’s business, the company’s preceding years gross sales are used to calculate the amount of tax due which can be less than 1% to 3% or more, regardless of when the business started to operate .
In the case of a newly-started business the initial tax for the year shall be calculated on the capital investment or paid up capital, contract of lease and size of office.
All business permits should be prominently displayed in every location where business is transacted.
The following is a list of holidays for 2016, declared by virtue of Proclamation No. 1105, s. 2015, unless otherwise specified:
January 1, 2016, Friday – New Year’s Day (Regular holiday)
January 2, 2016, Saturday – (Special non-working day)
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February 8, 2016, Monday – Chinese New Year (Special non-working day)
February 25, 2016, Thursday – EDSA Revolution anniversary (Special holiday)
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March 24, 2016, Thursday – Maundy Thursday (Regular holiday)
March 25, 2016, Friday – Good Friday (Regular holiday)
March 26, 2016, Saturday – Black Saturday (Special non-working day)
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April 9, 2016, Saturday – Araw ng Kagitingan (Regular holiday)
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May 1, 2016, Sunday – Labor Day (Regular holiday)
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June 12, 2016, Sunday – Independence Day (Regular holiday)
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August 21, 2016, Sunday – Ninoy Aquino Day (Special non-working day)
August 29, 2016, last Monday of August – National Heroes Day (Regular holiday)
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October 31, 2016 – (Special non-working day)
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November 1, 2016, Tuesday – All Saints Day (Special non-working day)
November 30, 2016, Wednesday– Bonifacio Day (Regular holiday)
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December 24, 2016, Saturday – (Additional special non-working day)
December 25, 2016, Saturday – Christmas Day (Regular holiday)
December 30, 2016, Friday – Rizal Day (Regular holiday)
December 31, 2016, Saturday – Last day of the year (Special non-working day)
The proclamations declaring national holidays for the observance of Eid’l Fitr and Eidul Adha shall hereafter be issued after the approximate dates of the Islamic holidays have been determined in accordance with the Islamic calendar (Hijra) or the lunar calendar, or upon Islamic astronomical calculations, whichever is possible or convenient To this end, the National Commission on Muslim Filipinos (NCMF) shall inform the Office of the President on which days the holidays shall respectively fall.
Should startup founders sign a shareholders agreement (SHA)?
Yes, startup founders should sign a shareholders agreement which should include most of the following items. The shareholders agreement should be written in clear language, definitions of words should be included to avoid ambiguities and disagreements among the founders, during the life of the company.
Capital – this section states the authorized, subscribed and paid-in capital, par-value and founder share allocations.
Non-compete – during and for a period of time following termination of employment in the company, the resigned/terminated founder will not engage in any way with any business that provides services or products similar/competitive being produced or under development by the company.
Vesting – Shares in startups are usually allocated upfront to founders at incorporation for a nominal value. Vesting prevents a co-founder who decides to leave or did not contribute what was expected of him from leaving a startup at an early stage with a large block of shares. When a co-founder leaves the startup for whatever reason, the startup buys back the unvested shares for a nominal value as agreed upon in the SHA.
Most founder’s shares vest over a 4 year period with a one year cliff. The SHA may also include milestones where shares may also vest.
Single or double triggers clauses may also be included for accelerated vesting of part or all of unvested shares. A single trigger could be the acquisition or a change of control of the company.
A one year cliff means, no shares vest until the founder has been with the startup for a year after which shares vest monthly.
Intellectual Property – assignment of IP (existing IP) & Invention Assignment Agreement (for IP developed while working for the company), can be in a separate agreement.
Funding by founders – how will the funds be treated, loan, capital etc….
Founder Roles – description of each founders main tasks and responsibilities in the company.
Dispute Resolution – how will disputes be resolved, arbitration, governing law.
Company Management – management of the business and affairs of the company.
Limitations of Transferability Rights of Shares
a. Pre-emptive: when a corporation issues new shares of stock, every shareholder has the right to purchase a portion of the issue, in proportion to their respective shareholdings in the corporation, unless the articles of incorporation provide otherwise.
b. Tag-along: when the majority shareholders sell their holdings to a third party Tag-along rights allow the minority shareholders to sell if they so desire their shares at the same price, terms, and conditions as the majority shareholders to the third party.
c. Drag-along: this is a clause that forces the minority shareholders to sell their shares to a third party should the majority shareholders sell their holdings at the same price, terms and conditions.
d. First-refusal: gives the other shareholders or the company the right but not the obligation to purchase shares that an existing shareholder proposes to sell to a third party at the same terms and conditions.
Drag-along and Tag-along rights generally terminate on public offering.
Some of the clauses of the SHA must also be included in the articles of incorporation and by-laws.
Corporation Code of the Philippines:
Section 98. Validity of restrictions on transfer of shares. – Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person.
Section 100. Agreements by stockholders. –
Agreements by and among stockholders executed before the formation and organization of a close corporation, signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of incorporation. (extract)
This is an overview of shareholder agreements between startup founders before business registration with the Philippines SEC, many other items may be included in a SHA that will allow a startup to grow while minimizing disputes between founders.
Dayanan Philippines Business Consultants answers startup founders business registration questions. Contact us now for a consultation.
The most common questions from startup founders before business registration with the Philippines SEC are:
How do I keep control of my company, while still issuing shares to investors?
How many shares should my company have?
A corporation was registered with an authorized capital of PHP One Hundred Thousand (100,000) divided into Ten Million (10,000,000) shares with a par value of One Centavo (PHP0.01) each.
For those of you, who think that the above is written in a foreign language, at the bottom of this article are the definitions of some financial terms that a startup CEO must know.
Philippine law (The Corporation Code of the Philippines) requires at incorporation that at least twenty five percent (25%) of the authorized capital stock of the corporation has been subscribed and at least twenty five (25%) of the subscribed has been paid.
Stockholders who only paid-in the 25% of 25% of their subscription will owe the corporation the remaining 75%. Best to have the all subscribed shares fully paid before selling unissued shares to investors.
How many shares to Founders?
Founders may allocate to themselves from 50% to 70% of the authorized capital leaving the remaining capital stock for investors and employee stock options.
E.g. Founders will subscribe to 5,000,000 shares with par value of PHP0.01 each or PHP50,000.00. This equals 50% of the authorized capital and 100% of the outstanding capital stock.
The Startup takes an Investor
Now what happens, when the company sells shares to an investor?
Let’s say an angel investor wants to invest PHP5,000,000 for 5% of the company.
We find ourselves with:
Founders owning 95% of the company with 5,000,000 shares who invested PHP50,000
Angel Investor owning 5 % of the company with 263,157 shares who invested PHP5,000,000.
The Pre-Money Valuation was PHP50,000 and we now have a Post-Money Valuation of PHP5,050,000 with 5,263,157 outstanding shares.
The shares issued to the angel investor are from the unissued capital stock, the investment will form part of the corporation’s capital.
The corporation now has a valuation of PHP5,050,000 or PHP0.96 per share, quite an increase from the PHP0.01.
Did the par-value increase?
No, the par-value per share has not changed. The par-value only changes if amended in the corporation’s Articles of Incorporation.
The corporation now has a paid-up capital of PHP5,050,000 composed of 5,263,157 shares with a par-value of PHP0.01 each. The increase in the valuation represents additional paid-up capital.
The startup still has 4,736,843 shares to offer future investors.
Documentary Stamp Tax (DST) must be paid to the BIR on all shares of stock issued by the corporation. The DST is calculated on the par-value of the shares and not on the price paid by the investors.
Definitions of terms to understand a corporation’s articles of incorporation:
Par Value The par value of a share of stock is the minimum value that a corporation may sell a share of its stock.
Authorized Capital The authorized capital is the maximum number of shares of stock that a company can issue with a specified par value. The authorized capital may be increased with the approval of at least two thirds of the shareholders.
The subscribed capital are the shares of stock that people or legal entities have promised to purchase from a corporation.
The paid-in capital (paid-up capital) is the actual amount of money stockholders have paid on the shares of capital stock for which they have subscribed.
Outstanding Capital The outstanding capital means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.
Pre-Money: The pre-money valuation refers to the company’s valuation before the investment.
Post-Money: Post-money valuation is the value of a company after an investment has been made. This value is equal to the sum of the pre-money valuation and the amount of new equity.
Do you have questions about Startup Founders Business Registration? Post them on our face book page and we will answer them in part 2 of this article. Dayanan Business Consultancy Facebook
Uber, Lyft and other transportation are facing numerous regulatory and legal challenges to its operations worldwide.
In the Philippines on October 22, 2014 the Land Transportation Franchising and Regulatory Board (LTFRB) apprehended an Uber driver in a sting operation for driving passengers for a fee without a Certificate of Public Conveyance. The driver was fined PHP200,000.
The Metropolitan Manila Development Authority (MMDA) on October 23, 2014, advised the Land Franchising and Regulatory Board (LTFRB) to find ways to reasonably assist transport services like local Uber instead of suspending its operations and impounding them as colorum vehicles citing that such private initiative will help ease traffic in Metro Manila pending the availability of a modern mass transport system, among other things.
The LFTRB issued Department Order No. 2015-11 on the creation of new type of serve for Public Transport Conveyances known as “Transportation Network Vehicle Service” (drivers or their companies) and on the accreditation of Transportation Network Companies (TNC) (Uber, Grabcar, Tripida).
May 28, 2015 the LFTRB issued a series of Memorandum Circulars 15, 16, 17 & 18 stating the requirements for Transportation Network Companies and their drivers.
An extract of the Memorandum Circulars:
All of the TNCs will have to modify their apps to comply with the LTFRB terms and conditions for accreditation:
1. Passenger should be able to view driver’s name and photograph, the vehicle license plate number and the case number issued by the LTFRB.
2. The app must make the rate structure transparent before the passenger confirms the ride. It must display the total fare, fare range or rate by distance or time.
3. The app must include a complaint mechanism through which passengers may file complaints or report lost items and the hotline number of the LFTRB.
The TNC must conduct a criminal background check and screening of all drivers and issue them ID cards with photo. All drivers must possess a professional Driver’s License.
Drivers must speak Filipino and English and undergo continuous training by the TNC on the use of the app, safety and standards, and terms and conditions applicable to them.
Once accepted by a TNC, drivers will have to apply for a certificate of public convenience (CPC) to a Transportation Network Vehicle Service.
As we can see it will not be easy to comply to with the accreditation requirements.
a) the BIR will require drivers if not working for a company to register with the Department of Trade and Industry as sole proprietorships and register with their businesses with the BIR and issue receipts to the TNCs. The BIR may disallow as a company expense payments to drivers who do not issue official receipts.
b) the use of the app by Uber’s Philippine’s subsidiary may entail Extended Withholding Tax on royalties and VAT payments.
c) There may be other tax issues depending on which payment gateway Uber uses and where its based, such as Extended Withholding Tax on payment gateways commission.
Foreign Ownership: the LFTRB allows a TNC to be 100% foreign owned, but the SEC has not yet issued an opinion on this matter. (The Philippines Foreign Investment Negative List restricts foreign ownership of transportation businesses to 40%.)
Department of Labor & Employment: In a Superior Court of California, County of San Francisco decision issued June 3, 2015, it was decided that a driver was Uber’s employee, even though Uber payment were paid to a corporation that she owned. (Uber Technologies Inc. vs. Barbara Berwick)
Taxi operators will keep opposing the TNCs, as they have lower franchise fees to pay the LFTRB.
Congressman in the Philippines wants Uber and other transportation and ride sharing apps to stop operations immediately.
The House Committee on Transportation has recommended the suspension of the implementation of the Department of Transportation and Communications (DOTC) Department Order (DO) 2015-11 and the operation of the Transportation Network Vehicles Services (TNVS) and Transportation Network Companies (TNCs) such as Uber, GrabCars and others until such time that they have complied with government regulation requirements.
Reasons given by various congressmen are:
Clearly, they are operating illegally said Rep. Raneo E. Abu and questioned why the Philippine National Police has not detained these illegal vehicles.
Rep. Estrellita B. Suansing said Uber should appear before the committee to explain their business model. “Why are they being allowed to operate when they are only listed as system developer? They are not certified transport services,”
Also she stressed the fact that the LTFRB has a standing moratorium on the issuance of taxi franchise and how the TNCs should be taxed for the whole fare collected from passengers and not just the commission.
Rep. Philip A. Pichay said on the taxation issue, the tax allocation should be clear and that tax clearance from both the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) should be required from the TNCs.
The on the ground reality in the Philippines is that UBER and others will continue operations without obtaining a franchise until …
Are you looking to expand or operate your startup in the Philippines? Contact Dayanan Business Consultancy now for a free consultation. Business Registration in the Philippines the right way.
It doesn’t not matter whether you’re a foreigner or a Filipino, it really is difficult to start a business in the Philippines.
Tips for foreigners who want to register a company in the Philippines
Do your homework! There are many restrictions on foreign equity ownership of businesses in the Philippines. The percentage of foreign ownership will also dictate the allowed number of foreign directors and officers of the company.
There are exceptions; up to forty percent Foreign ownership of educational institutions is allowed as stated in the 1987 Constitution and in the Foreign Invest Negative List; but Presidential Decree No. 176 issued in 1973 disallows any foreigner from being a director or officer of an educational institution.
The Philippines Foreign Investment List (which is revised every few years) states the restrictions on foreign ownership but does not provide any information on other restrictions which may apply to your business, such as the number of allowed foreign directors, officers, residency obligations, secondary licenses or the minimum paid-in capital requirements for certain industries.
Obtaining the necessary and correct information to register and run a business in the Philippines is a difficult task and entails inquiring with multiple government agencies with some giving outdated facts.
Anti Dummy Law
To avoid foreign ownership regulations many people try to find schemes to circumvent the Philippines Foreign Investment Act. All these schemes using nominee shareholders (anti-dummy law) or misstating the primary purpose of the business in the articles of incorporation are illegal.
Registering a Business on Your Own – Unless you’re a frequent visitor to Philippine government agencies, there is no way to be sure that the forms you downloaded from their website are current and that application processes and fees haven’t changed. The multiple visits to the SEC and frustrations will make you regret not having hired a Philippine business consultant to guide you and process your documents.
Local Business Permits
Once a business has been licensed to transact business in the Philippines by the SEC, the company must still register with the local municipality where its principal office is located (Mayors’ Permit), BIR, SSS, HDMF and PhilHealth. The new Unified Registration Record (URR) touted by the SEC as incorporation made easier and faster does not simplify registration with any government entity as a business will still need to go each and every government office to register and process application forms. Only the government will benefit from the URR as they will use it to insure compliance in filings and payments of fees and taxes.
All businesses registered in the Philippines must comply with BIR (Bureau of Internal Revenue) regulations and file monthly, quarterly and annual reports as well as an audited financial statement. Bookkeeping may only be computerized by submitting a special request with the BIR.
Payroll is quite complicated in the Philippines and it’s essential to have an extensive knowledge of taxation and labor laws to correctly compute it.
Starting a Philippine business, contact Dayanan now, to discover how we can remove the annoyances and exasperation of doing business in the Philippines.