Startup Founders Business Registration Questions Part 2

founders vesting share holders agreementShould 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.

 

  1. Capital – this section states the authorized, subscribed and paid-in capital, par-value and founder share allocations.
  2. 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.
  3. 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.

  1. Intellectual Property – assignment of IP (existing IP) & Invention Assignment Agreement (for IP developed while working for the company), can be in a separate agreement.
  2. Funding by founders – how will the funds be treated, loan, capital etc….
  3. Founder Roles – description of each founders main tasks and responsibilities in the company.
  4. Dispute Resolution – how will disputes be resolved, arbitration, governing law.
  5. Company Management – management of the business and affairs of the company.
  6. 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.

  1. 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.

Startup Founders Business Registration Questions Part 1

Philippines Startup Corporation Share Certificate
Startup Corporation Share Certificate

The most common questions from startup founders before business registration with the Philippines SEC are:

  1. How do I keep control of my company, while still issuing shares to investors?
  2. How many shares should my company have?

Example Incorporation

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:

  1. Founders owning 95% of the company with 5,000,000 shares who invested PHP50,000
  2. 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:

  1. Par Value
    The par value of a share of stock is the minimum value that a corporation may sell a share of its stock.
  2. 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.
  3. Subscribed Capital

The subscribed capital are the shares of stock that people or legal entities have promised to purchase from a corporation.

  1. Paid-in Capital

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.

  1. 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.

Other terms:

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

Steps in Registering Your Corporation in the Philippines: A Brief Overview

Philippines Business RegistrationOnce you have decided that the Philippines is a good place for setting up business, it’s time to begin the process of registering your corporation.

Here are the steps to registering a corporation in the Philippines:

1. Register your company name with the Philippine Securities and Exchange Commission (SEC) . This is the government agency under whose jurisdiction falls all corporations, associations, and partnerships established in the country.

SEC registration involves at least 5 steps, which begin with the online verification and reservation of the company’s proposed name, and ends with your claiming your SEC license/certificate in person at the SEC office.

2. Get clearance from the barangay hall. A barangay is a Filipino local government unit usually composed of several villages. Several barangays make up a municipality.

To get barangay clearance, go to the barangay hall of the area where you intend to put up your main office. Submit your SEC certificate, site map of your company’s intended location, your approved articles of incorporation and bylaws, and your application form. Then, pay the application fee, and receive your signed barangay certificate that very same day or next day.

3. Secure your municipal permit. Municipal permit application can be complex for two reasons: (1) municipalities vary widely in their requirements, and (2) before you can get your municipal permit, you will need to get supporting certificates from other government agencies outside the municipal hall, like the Bureau of Fire Protection, the municipal health center, etc.

Once you have secured all of your required certificates, bring them back to the municipal hall, pay the fees stated in your application form, then wait a week or two (or more) for your certificates to be ready.

4. Register with the Bureau of Internal Revenue (BIR). The BIR is the last stop in your business registration process. Armed with all the papers and certificates you have so far secured from the SEC, barangay hall, and municipal hall, plus all the other requirements you submitted to be able to secure those permits, go to the BIR revenue district office (RDO) in charge of the area where your business is located.

You may or may not need all the paper you bring with you. Like the municipal halls, RDOs can vary slightly in their requirements for registration.

At the RDO, fill out BIR forms 1903 (Application for Registration for Corporations) and 0605 (payment form for the registration fee).

Submit your application form and all required supporting documents, pay the registration fee and documentary stamps, and you’re done for the day. The BIR will tell you when you should call back to confirm whether your certificate of registration (COR) is ready.

Once your COR has been issued, you have 30 days to have your official receipts and sales invoices printed.

6. Register with the Social Security System (SSS), Home Development Mutual Fund (HDMF), Philippine Health Insurance Company (Philhealth), and the Philippine Department of Labor and Employment (DOLE). Registration with the DOLE becomes mandatory when you have 5 or more employees in your payroll. On the other hand, companies with even just one employee are required to register as employer with the SSS, HDMF, and Philhealth, so that their employee/s may enjoy the benefits of these agencies.

At present, the Philippine government is revising SOPs and putting up infrastructure and to speed up and simplify the system of business registration in the country.

Frustration among registrants is usually caused by the lack of communication from the involved government offices. For instance, it is not uncommon for registrants to discover that the requirements for business permit that are published in a municipality’s website are not complete, and the registrant ends up having to go back and forth to complete the required documents. Many a registrant has also experienced falling in line at a certain window, following instructions indicated by a flowchart posted on the wall, only to find out half an hour later that the flowchart is inaccurate and they are in the wrong queue.

Dayanan Business Consultancy is well versed in the ins and outs of the Philippine business registration process. We’ll be happy to guide you in every step of your company registration in the Philippines. Call us now to learn more about our services.

Doing Business in the Philippines

Philippines Business Registration
Ayala Avenue Makati City Central Business District

Dayanan Business Consultancy assists individuals and foreign companies of all sizes in setting up their business operations in the Philippines. Doing business in the Philippines has many advantages as well as a large amount red tape.

Once we know your goals and the kind of business you want to launch in the Philippines,  DBC will recommend the best structure for your KPO, Call Center, IT or Web Development Outsourcing, Back Office Operation or Import and Export. DBC will advise you how to register your investment with PEZA or BOI to obtain tax incentives.

Get the Leading Business Process Outsourcing in the Philippines

We will also ensure that you will get the best Business Process Outsourcing in the Philippines. BPO is a cost-saving measure which is a method of subcontracting business-operations to a third party. One category of BPO is outsourcing of back office services, and Dayanan can help you starting from your business registration in the country.

DBC’s knowledge of the Philippine’s business environment and government agencies allows DBC’s clients to reach their objectives quickly. Personalized service is our commitment, whether your intention is to establish a:

Once the SEC has issued your License to Transact or Certificate of Incorporation, DBC will still be there to help get local business permits and licenses and register with other government agencies when necessary.

Other services DBC provides Business Development and Marketing, Business Plans, Visa Processing, Bookkeeping and Payroll.

Your Business Registration in the Philippines will be done quickly and professionally through Dayanan Business Consulting services.

Contact the DBC Team now for a free consultation.

Philippines Incorporation

Philippines Incorporation (Subsidiary or Domestic Corporation)

The SEC is the government agency which supervises incorporation in the Philippines. The Philippines incorporation process is done as follows:

Corporate Name

Reservation of corporate name with SEC. (a name can be reserved for up to 3 months)

Articles of Incorporation

Preparation of Corporate Articles of Incorporation and Bylaws.

Treasurer’s Affidavit

Secure Treasurer’s Affidavit and attach to the documents.

Submission SEC F-100 form

Companies with more than 40% Foreign Ownership must also submit SEC Form F-100.

Submit All Requirements

Submission of all the above documents to SEC for Registration

Finish

Wait until they process your documents and application

SEC registration fees will depend on the amount of authorized capital. There will also be notarial fees. Certain kinds of business are required to have a minimum paid-in capital as specified by the laws regulating those businesses. Foreign business ownership is regulated by the Regular Foreign Investment Negative list.

It usually takes one to two weeks for the SEC to issue the Certificate of Incorporation from the time all the required documents are submitted.

Once the Certificate of Incorporation has been issued the corporation will be required to obtain local business permits (Mayors’s Permit and Barangay Clearance), register with the Bureau of Internal Revenue and other government agencies SSS, PhilHealth and HDMF.

DBC with the assistance of its legal team will prepare the Articles of Incorporation and Bylaws of your corporation based on the requirements of your business. Take note there exist restrictions on foreign ownership which may affect how many shares you may own and the amount of minimum paid-in capital. Business Process Outsourcing is considered an export enterprise which may be 100% foreign owned and may avail of tax incentives from the BOI or PEZA.

Certain kinds of business need additional endorsements and licenses from Philippines government agencies.

Government licensing bureaus:

  • Bureau of Food and Drugs
  • Bureau of Customs
  • Department of Labor and Employment
  • Department of Environment and Natural Resources

How to Open a Company in the Philippines

Their are many options to open a company in the Philippines. Some though can only be used for marketing and export inspection such as a representative office or for regional management RHQ.

We recommend either setting up and registering a branch office or a corporation rather than a partnership or a sole proprietorship. A corporation limits the liability of the shareholders and therefore offers more protection in case of litigation.

How to Open a Company in the Philippines
How to Open a Company in the Philippines

A branch office of a foreign corporation requires many documents from the home country which must be in English and authenticated by the Philippines Embassy in the country of origin. These documents must be submitted to the SEC with an application form for a license to transact business.

A sole proprietorship must be registered with the Department of Trade and Industry (DTI). It can only be foreign owned, if the business that it will operate is allowed to be 100% foreign owned as per the negative list A and B. Another requirement for foreign ownership is a minimum capitalization of USD200,000. The disadvantage is the full liability of its owner.

Reservation of Business Name

No matter what vehicle you will use to start your business in the Philippines the first step is the reservation of the business name with the SEC or DTI. Even though the SEC will issue a certificate of reservation for your chosen name you will still need to prepare an affidavit of undertaking to change name in the event that another entity has prior right to its use by registration with other government agencies.

Once the your desired name has been reserved the next step is to prepare the articles of incorporation or partnership and bylaws for domestic companies and for foreign owned companies you will need to obtain copies of all documents that show proof of existence in the host country as well as audited financial statements in English and authenticated by the Philippines embassy of the country of origin.

Paid-in Capital

Proof of paid-in capital or inward remittance is needed. A treasurer in trust account or a non-resident account must be opened in a bank located in the Philippines who will issue a bank certificate certifying the amount of funds which have been deposited.

With all the above you are now ready to submit your application for a business license with the Philippines SEC.

Though the corporation code of the Philippines allows a minimal capitalization of PHP5,000 we highly recommend that you start with a at least PHP100,000 or higher. A low paid-in capital will hinder you applications for bank loans or obtaining credit from potential suppliers. Certain kinds of businesses may require a higher paid-in capital than others.

Contact DBC now for a free consultation on how to open your company in the Philippines and all other Philippines business registration requirements.

Doing Business in the Philippines Made Easy

Dayanan Business Consultancy helps foreign companies get their business up and running in the Philippines.

Besides being known for the hospitality and warmth of its people, the Philippines has a promising culture. A developing country that boasts of fluent English speakers, this country is attracting foreign investors for its industrial competitiveness.

Highlighting how doing business in the Philippines can be advantageous but prone to red tape, Dayanan Business Consultancy or DBC assists individuals and foreign companies of all sizes in setting up their business operations in the Philippines.

Through its website, DayananConsulting.com, DBC guarantees to help customers by preparing business plans and obtaining business permits on their behalf. In addition, DBC can provide services for feasibility studies, business plans and real estate studies and consultancy.

Business Registration Incorporation Philippines SEC

Dayanan Business Consultancy explains that its knowledge of the Philippines’ business environment and government agencies allows its clients to reach objectives quickly. The company commits to personalized service for businesses seeking to establish in the Philippines Foreign Ownership of Corporation, a 100% Foreign Owned Domestic Corporation (subsidiary), Representative Office, Foreign Branch Office, Partnership, Sole Proprietorship or Regional Headquarters.

DBC, as a business consultant in the Philippines, will recommend the best structure for BPO, KPO, Call Center, IT or Web Development Outsourcing, Back Office Operation or Import Export. DayananConsulting.com will also advise businesses on how to register their investments with the Philippine Export Zone Authority or the Board of Investments to obtain tax incentives.

Once the Securities and Exchange Commission has issued a License to Transact or Certificate of Incorporation for a business, DayananConsulting.com will still be there to help get local business permits and licenses and register with other government agencies as may be necessary. Other services that DBC provides include Business Development and Marketing, Business Plans, VISA Processing, Bookkeeping and Payroll. The DBC Team also offers free consultation services.

Benefit from Dayanan Business Consulting services to register and obtain Philippine business permits quickly and professionally. Check out http://www.dayananconsulting.com now and learn how business can start operating in the country in no time.

About: Dayanan business consultancy helps foreign companies get their business up and running in the Philippines. They can help customer obtaining business permits and prepares business plans. In addition, the company can provide services for feasibility studies, business plans and real estate studies and consultancy.

Company Contact Information
DayananConsulting.com
Public Relations
Unit 12C, Valero Towers 122 Valero St. Salcedo Village, Makati, Philippines
1227
Phone : +639178125014