The economic dynamism of the Philippines encourages entrepreneurs to establish a business in the country.
And as it brims with entrepreneurial potential, there were some significant provisions in business structures intended to entice more foreign investors and further ease the process of putting up a company.
One Person Corporation In The Philippines
The One Person Corporation (OPC) is one of the provisions introduced by Republic Act No. 11232, otherwise known as the “Revised Corporation Code of the Philippines” (RCC).
The OPC business structure allows a single person (citizen or foreign) or sole owner to build a corporation without needing a minimum number of shareholders.
Traditional Corporation vs. One Person Corporation
Unlike the Traditional Corporation, a One Person Corporation differs in terms of control and management over the company, profit distribution, and others.
Both business structures differ depending on the nature of business, government regulations, and the entrepreneur’s preference.
An OPC is a great choice for entrepreneurs who want to scale up a business from a Regular or Traditional Corporation.
Whereas, Sole Proprietorship is more cost-effective and provides freedom to dictate the direction of a business. With an OPC, one has the choice and control of a Sole Proprietorship, all while keeping the limited liability benefits of a Traditional Corporation.
However, like any other business structure, there are advantages and disadvantages to One Person Corporation in the Philippines.
Benefits Of One Person Corporation
- Limited liability – An OPC ensures a separate juridical personality from its individual owner.
Therefore, only the company is liable for its debts and obligations. Unlike with Single Proprietorship, an OPC is better as the owner’s personal assets are deemed separate and protected from creditors. - Perpetual existence – Under the RCC, corporations are now allowed to exist perpetually unless their Articles of Incorporation (AOI) provides otherwise, thus, there’s no need to petition for renewal with the Securities and Exchange Commission (SEC) after its 50-year lifespan limit as the former Corporation Code mandated.
This amendment doesn’t just allow the creation of long-term value investments, but it also essentially reduces the probability of businesses shutting down prematurely. - Complete control – The owner of an OPC has sole discretion and direct control on business decisions and is not subjected to the scrutiny of shareholders nor does it need to seek consensus from the board of directors.
- No minimum capital requirements– There’s no minimum capital required for OPC unless stated by law.
Unlike other business structures, no portion of authorized capital is needed to be paid up at the time of incorporation.
The only requisite payments to incorporate an OPC are name reservation fees, filing fees, and legal research fees. - Advantages of standard tax deductions and government incentives – For tax implications in the Philippines, an OPC provides better access to the standard optional deduction of 40 percent for income tax purposes.
A corporation can initially deduct direct cost then deduct the 40 percent optional deduction from its gross income. - Existing corporations can restructure as an OPC – An existing domestic Ordinary Stock Corporation (OSC) is allowed to convert to an OPC if a single stockholder acquires all shares of the company.
However, one of the prerequisites is to appoint a corporate secretary and treasurer. The director may fill in the position of treasurer but cannot be the corporate secretary.
Disadvantages Of One Person Corporation
- Limitations on foreign ownership – OPC is open to foreign investors within an industry that permits 100% foreign ownership but is limited only to some industries such as manufacturing, export, retail, or e-commerce.
Other industries included in the Foreign Investments Negative List are strictly not allowed. - More complex and time-consuming – An OPC has more administration requirements to file than Sole Proprietorship.
Along with the AOI, OPCs are also required of the following documents:
1. Annual audited financial statements
2. An explanatory report in response to audit findings and recommendation(s)
3. Disclosure of all self-dealings between the OPC and the director
4. Other reports as required - Natural persons, trusts, or estates limitations – The RCC doesn’t allow professionals or natural persons with a license in certain professions such as lawyers, accountants, and doctors from turning their practice into a corporation.
This is to protect the said fields and other regulated professions from corporate interests and ensure that patient and client welfare are prioritized.
Apart from that, banks, financial institutions, quasi-banks, and other financial institutions are also not allowed to incorporate as an OPC to protect the public interest.
- Tax obligations are subjective on a case-to-case basis– Sole Proprietorships are only required to pay 8% income tax only, while the corporate income tax rate is 30%.
Despite that, there are still more tax benefits for the corporation business structures in the Philippines.
Closing Thoughts
All business structures in the Philippines, including One Person Corporation, have their respective pros and cons.
Thus, business goals and preferences should be taken into consideration.