WHICH TYPE OF CORPORATION SHOULD I SETUP IN THE PHILIPPINES
Updated: Mar 8
More and more entrepreneurs are choosing the Philippines to establish their start-ups. Thanks to simpler corporate structures which have significantly cut down the cost and time to set up a company in the country.
There are basically 4 types of corporations you can consider for your startup in the Philippines:
Limited Liability Companies (LLCs)
Limited Liability Companies
An example of limited liability companies are domestic corporations and One Person Corporations (OPC). Domestic corporations were required to have a minimum of 5 investors but with the RA 11232, there is no longer a minimum number of shareholders required to establish a corporation in the Philippines.
A corporation may have up to 15 shareholders except for OPCs which, as its name implies, only has a single shareholder.
Domestic corporations may be the most popular legal entity type among foreign investors in the Philippines. Most domestic corporations in the country do have foreign shareholders especially in the field of BPO and IT services. It is even possible that a domestic corporation has full foreign ownership.
One Person Corporation
Unlike a normal corporation, an OPC only has one shareholder and it could be a natural person, a trust, or an estate. An owner of an OPC is required to have a nominee and an alternate nominee who will manage the company in the event of his death or if he is otherwise become incapacitated.
How much is the minimum capital requirement in the Philippines?
The minimum capital requirement in the Philippines depends on the level of foreign ownership of the corporation. A domestic corporation with a foreign ownership of more than 40% has a minimum capital requirement of 200,000 US dollars. But, for a domestic corporation with less than 40% foreign ownership or is locally-owned, the minimum capital requirement is 5,000 pesos.
The paid-up capital should be at least 25% of the subscribed capital for corporations that are foreign-owned and a minimum of 5,000 pesos for locally-owned. The company is required to deposit the paid-up capital once it has a local bank account and before submitting the financial statement audit for its first year of operation.
Is there a way to reduce the minimum capital requirement?
For corporations with more than 40% of foreign ownership employs at least 50 Filipino citizens, the minimum capital requirement is reduced to 100,000 US dollars. Businesses that export at least 70% of its products also has a minimum capital requirement of only 5,000 pesos.
Foreign Business Ownership in the Philippines
Foreign ownership is open to most business lines in the Philippines as long as the minimum capital requirement is fulfilled. However, some business lines only allow a maximum percentage of foreign ownership as per the Foreign Investment Negative List (FINL). Industries not mentioned in the list can be 100% foreign-owned.
Some of the common industries that are open to foreign ownership include but are not limited to:
Teaching in higher education
Adjustment companies, lending companies, financing companies, and investment houses
Training centers outside the formal education system
Business Process Outsourcing (BPO)