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What to Know About Establishing a Corporation

Having ownership of a corporation can open up many new possibilities for your business, especially compared to having a sole proprietorship or a partnership. You might not want to have personal liability on your business anymore, or perhaps you’d like to seek out investors by offering them stock. A corporation can offer you growth that the other two business entities can’t achieve.

In the final part of this series, we’ll be discussing the final type of business entity that you can create. If you’re thinking of incorporating your business, here’s what you need to know.

What is a corporation?

A corporation is a business structure that is its own legal entity. This means that it exists independently of its owners and/or incorporators and has the same rights and obligations of an individual. Its ownership is divided into stock shares; individuals and other businesses who possess the stock of a corporation are its owners or stockholders.

A corporation differs from a partnership because partnerships aren’t considered a legal entity. Additionally, partnerships only require two or more individuals to form, while corporations need a minimum of five and a maximum of fifteen.

What are the advantages and disadvantages of a corporation?

There are several advantages to incorporating your company. Firstly, any risk and liability you may encounter will only affect the corporation itself, and owners are not personally liable. It can also easily be passed down to different owners and live indefinitely, ensuring that it will continue to persist even after its owners are no longer around. 

On the other hand, it does have its own disadvantages that you should consider if you want to incorporate your company. It is the most challenging business structure to set up in terms of expenses and paperwork. It also generally has a higher capital requirement and operation cost. Finally, corporations are subject to more compliance requirements and laws compared to partnerships and sole proprietorships.

How do you establish a corporation?

There are many similarities between the steps for establishing a corporation and a partnership, so expect to see many of the same steps that we’ve discussed in our previous article regarding partnership businesses. Here’s what you need to do to establish a corporation: 

  1. Register your business in the Securities and Exchange Commission.

All partnerships and corporations must secure a certificate of registration with the Securities and Exchange Commission, or SEC, in order to operate. You can start off by going to their website to check the availability of the name of your business and fill out the application form. However, you can also do this at your nearest SEC office.

To register your business in the SEC, you’ll have to prepare and notarize a few documents. These are your organization’s by-laws and articles of incorporation, the joint affidavit of at least two incorporators, and an affidavit of your organization’s treasurer. You’ll also need your name reservation/verification slip, your cover sheet, and your registration data sheet.

  1. Get a Barangay Clearance

Since you’ll be setting up your organization in your barangay, it’s important to get your business a barangay clearance. This ensures your community that your business adheres to the standards of their local Barangay. To complete your application, you’ll need your Certificate of Business Registration from the SEC, two (2) valid IDs, and a proof of address. This can be the contract of your lease if your location is rented, or your Certificate of Land Title if you own your own location.

  1. Apply for a Business or Mayor’s Permit

Similar to your Barangay Clearance, you’ll need a Business Permit or Mayor’s Permit so that you can run your business in your municipality. These permits are also proof that your business meets the standards of the Local Government Unit, or LGU. Note that these permits do have an expiration date, as they must be renewed once a year.

Note that you’ll only be able to get these permits after you’ve secured the other requirements in the previous steps: a Certificate of Registration from SEC and a Barangay Clearance. You’ll also need two (2) valid IDs and a proof of address, similar to what you provided when applying for your Barangay Clearance.

  1. Register with the BIR

You’ll need to register with the Bureau of Internal Revenue or BIR to comply with tax obligations. Registering with the BIR will also grant you permission to issue official receipts, register books of accounts, and obtain a separate Tax Identification Number for your business.To complete your registration, you’ll need to accomplish BIR Form 1903 – Application for Registration (For Partnerships/Corporations).

Besides your complete BIR Form, you’ll also need to submit your previously completed Certificate of Registration from the SEC, Barangay Clearance, and Business or Mayor’s Permit. You’ll also need proof of address and a valid ID. Then, register your account books and up-to-date invoices. After this, you’ll finally get your BIR Certificate of Registration.

  1. Register as an Employer

Finally, register with these government-mandated agencies as an employer. You will need to register your employees with the Philippine Health Insurance Corporation (Philhealth) and the Home Development Mutual Fund (HDMF) and remit their shares of contribution to the aforementioned agencies. Philhealth is responsible for providing your employees with health insurance, while the HDMF administers the Pag-IBIG Fund, which provides affordable financing for its members’ housing needs. You’ll also need to register both your business and your employees in the SSS so you can properly remit your employees’ monthly contributions. 

This concludes our series about establishing your own business. Whether you plan on opening a sole proprietorship, partnership, or corporation, we hope that our guides have given you insight on the process you’ll have to go through.

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