Starting a business in the Philippines begins with choosing the right structure. For many entrepreneurs, forming a corporation is an appealing choice. Corporations offer significant benefits such as limited liability, scalability, and enhanced credibility. However, with several types of corporations available, it can be challenging to determine which one is the best choice for your business.
To help you with this decision, we’ll explain the various types of corporations available in the Philippines and their unique advantages.
What is a Corporation?
A corporation is a legal entity created separate from its owners, with its own rights, obligations, and liabilities. It is governed by the Revised Corporation Code of the Philippines (Republic Act No. 11232), which outlines the rules for its formation, operation, and dissolution. A corporation can own assets, enter into contracts, sue or be sued, and conduct business in its own name, shielding its owners from personal liability for the company’s debts.
This structure is ideal for businesses seeking growth, longevity, and protection from personal financial risk.
Advantages of Being a Corporation
Forming a corporation offers several benefits, making it a popular choice for businesses of all sizes (but especially larger ones):
- Limited Liability: Shareholders are not personally liable for the corporation’s debts or obligations. Their financial risk is limited to their investment in the company.
- Perpetual Existence: A corporation continues to exist even if its owners or shareholders change, ensuring business continuity.
- Access to Capital: Corporations can raise funds by issuing shares of stock, attracting investors to fuel growth.
- Professional Management: Corporations often have a structured management system, with a board of directors and officers handling operations, which can enhance credibility. This credibility can make your business more attractive to investors and clients.
- Tax Benefits: Corporations may enjoy certain tax incentives, especially for those registered with the Philippine Economic Zone Authority (PEZA) or Board of Investments (BOI). Additionally, corporations typically offer lower tax rates for high-income businesses compared to other business structures.
These advantages make corporations appealing to entrepreneurs aiming to scale their businesses while minimizing personal risk.
Types of Corporations in the Philippines
The Revised Corporation Code recognizes several types of corporations, each suited to different business goals and structures. Below are the main types:
1. Stock Corporation
A stock corporation is formed to generate profits for its shareholders. It issues shares of stock, which represent ownership in the company, and distributes dividends from its earnings. Stock corporations are common among businesses like retail, manufacturing, or tech companies.
- Key Features: Has capital stock divided into shares, issues dividends, and is managed by a board of directors elected by shareholders.
- Best For: Businesses seeking to raise capital through investors and operate for profit.
- Additional Notes: Stock corporations may be classified as domestic, one-person, or foreign-owned (For example, a domestic stock corporation).
2. Non-Stock Corporation
Non-stock corporations are not organized for profit but for public or charitable purposes, such as education, religion, or civic activities. They do not issue shares, and any income is reinvested to further their objectives.
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- Key Features: No shareholders or dividends, managed by a board of trustees, and often enjoys tax exemptions if registered as a non-profit. Profits are reinvested in the corporation to support its cause.
- Best For: Foundations, associations, or organizations focused on social, educational, or charitable causes.
- Additional Notes: Non-stock corporations may be classified as domestic or foreign-owned, but they cannot be formed as a One Person Corporation (OPC).
3. Domestic Corporation
A domestic corporation is incorporated under Philippine laws and operates within the country. It can be either a stock or non-stock corporation, depending on its purpose. Domestic corporations must register with the Securities and Exchange Commission (SEC).
- Key Features: Formed and governed by Philippine laws, with at least five incorporators (except for one-person corporations).
- Best For: Businesses planning to operate primarily in the Philippines.
4. One-Person Corporation (OPC)
Introduced under the Revised Corporation Code, an OPC allows a single individual to form a corporation without needing multiple incorporators. It’s a game-changer for solo entrepreneurs who want the benefits of a corporation without partners.
- Key Features: Single shareholder who acts as the sole director and president, limited liability, and simplified governance.
- Best For: Solo entrepreneurs, freelancers, or small business owners seeking limited liability, corporate structure, and better tax rates/incentives.
5. Foreign Corporation
A foreign corporation is incorporated under the laws of another country but seeks to do business in the Philippines. It must obtain a license from the SEC to operate locally, either as a branch or a representative office.
- Key Features: Subject to foreign ownership restrictions in certain industries (e.g., retail, media), requires a resident agent in the Philippines.
- Best For: International companies expanding into the Philippine market.
- Additional Notes: A branch office can engage in income-generating activities. In contrast, a representative office cannot earn income locally and is limited to non-commercial activities like marketing, liaison, or administrative support. Both structures allow foreign companies to establish a presence without incorporating a new Philippine entity.
Choosing the Right Corporation Type
Selecting the appropriate corporation type depends on your business goals, scale, and ownership structure. For profit-driven ventures with multiple investors, a stock corporation is ideal. Non-stock corporations suit charitable or civic missions. Domestic corporations cater to local operations, while OPCs empower solo entrepreneurs. Foreign corporations enable global businesses to tap into the Philippine market.
Before making a decision, consider consulting with one of our corporate law experts. We offer professional guidance on selecting the right type of corporation and handling the registration process.
Summary
Understanding the different types of corporations in the Philippines—stock, non-stock, domestic, one-person, and foreign—is important for anyone considering incorporation. This knowledge helps aspiring entrepreneurs and existing business owners make informed decisions when transitioning to a corporate structure. y choosing the right type for your business, you can unlock the many advantages that come with being a corporation.
Are You Registering a Corporation for the First Time? Here’s Where to Find Help
Corporations are the most complex type of business to register, requiring detailed legal documents such as the Articles of Incorporation and Bylaws. You’ll also need numerous permits and licenses to operate in your chosen industry legally. With so many requirements, it’s easy to overlook a document or miss a renewal—mistakes that can result in hefty fines or even force your business to suspend operations.
Thankfully, the Business Registration Philippines team provides comprehensive support for your business registration, so you don’t have to stress over the paperwork. Contact us today to schedule an initial consultation with one of our experts:
- Contact Us Here
- Fill Out the Form Below
- Call us at +63 (02) 8540-9623