Incorporation or Setting Up a Business in the Philippines
The 38-year old Corporation Code of the Philippines was repealed by Republic Act No. 11232 or the Revised Corporation Code of the Philippines (“RCC”), which took effect on 23 February 2019. The Revised Corporation Code of the Philippines was passed with the aim of improving the ease of doing business in the Philippines.
Unfortunately, many are still not aware of the changes brought by the new law. Consequently, a lot of businesses and local and foreign investors are still often misguided about certain restrictions under the old law, and which have already been removed by the new law.
Below is an updated SEC requirements for corporation registration and a step-by-step guide, which considers the RCC and the new rules and regulations issued by the Securities and Exchange Commission (“SEC”) in light of COVID-19 pandemic.
A. Basic Steps for Incorporation
Generally, the following are the steps to incorporate a business in the Philippines:
1. Reservation of corporate name;
2. Preparation of registration documents and other documentary requirements;
3. Submission of requirements to the SEC;
4. Payment of registration fees; and
5. Issuance by the SEC of a Certificate of Incorporation, which means that the company is now duly incorporated in the Philippines.
The SEC Company Registration System is used to initiate the incorporation process for companies with at least five (5) incorporators (see https://www.sec.gov.ph/online-services/sec-company-registration-system/).
Under the old law, there must be at least five (5) incorporators. The RCC removes the minimum number of incorporators. Thus, a company may now be incorporated with a single incorporator or stockholder, known as the One Person Corporation (“OPC”). Individual persons may now establish an OPC, which would entitle them to the benefits of a corporation, particularly, the limited liability feature that is not available to sole proprietorships and partnerships.
If the company to be set up or incorporated has less than five (5) incorporators, incorporation is commenced using the SEC’s Interim Registration Procedure (see https://www.sec.gov.ph/opc-and-2-4-registration/).
Both online registration systems include the verification of company name, appeal for disallowed proposed name, fill-out of Articles of Incorporation and By-Laws or submission through uploading of documents for internal processing or evaluation, assessment and issuance of deficiencies on submitted or uploaded application or SEC registration documents, assessment of filing fees, and payment of fees.
SEC will email an appointment date to the applicant or its representative (i.e., corporate lawyer if the applicant has hired a legal counsel) to notify it when the Certificate of Incorporation may be available for release and pick-up at the SEC’s office. The applicant or its representative may receive said notice of appointment for the issuance of the Certificate of Incorporation within two (2) weeks to one (1) month from the time of payment of registration fees.
B. Documentary Requirements for Incorporation
The basic SEC registration requirements for a corporation are:
1. Cover Sheet for Registration
2. Articles of Incorporation
The Articles of Incorporation shall include the (a) corporation’s name, (b) primary and secondary purpose, (c) term of the corporation (perpetual unless specified otherwise), (d) address of the principal office, (e) incorporators and directors (i.e., names, nationalities, residences, and tax identification numbers), (f) authorized capital stock (i.e., the maximum number of shares that a corporation can issue, and their value), (g) subscription (i.e., the initial shareholders of the corporation, the number of shares and amount subscribed by them), (h) paid-up capital (i.e., subscribers, amount subscribed, and amount paid), (i) treasurer’s name (the treasurer must a Philippine resident), and (j) treasurer’s affidavit.
The By-Laws provides rules and regulations necessary for the proper and convenient management of the company’s affairs. As a general rule, the By-Laws provides the following: (a) time, place, and manner of calling and conducting regular or special meetings of the directors or trustees; (b) time and manner of calling and conducting regular or special meetings and mode of notifying the stockholders or members; (c) required quorum in meetings of stockholders or members and the manner of voting therein; (d) modes by which a stockholder, member, director, or trustee may attend meetings and cast their votes; (e) form for proxies of stockholders and members and the manner of voting them; (f) directors’ or trustees’ qualifications, duties and responsibilities; (g) time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof; (h)manner of election or appointment and the term of office of all officers other than directors or trustees; (i) penalties for violation of the bylaws; and (j) such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for the promotion of good governance and anti-graft and corruption measures.
4. Certificate of Bank Deposit
The Certificate of Bank Deposit is a sworn certificate, issued by an officer of the bank where the company’s Treasurer-in-Trust for Account (“TITF”) account is opened, certifying that the required paid-up capital is deposited in the bank in the name of the company’s Treasurer-in-Trust or the initial treasurer of the company. The TITF may be a temporary account and remains non-operational until the company registration is approved by the SEC.
Upon incorporation, the TITF can be converted into a regular account which can be used for the regular operations of the newly registered company.
5. SEC Form No. F-100 or Application to do business under the Foreign Investments Act of 1991 (“FIA”)
If a foreign investment is involved and the foreign incorporator-shareholder/s own more than 40% of the share capital of the corporation, the SEC requires the submission of a duly filled-out SEC Form No. F-100. This form includes the (a) corporation’s name, (b) percentage of foreign equity, (c)primary purpose, (d) principal office, (e) capital stock (i.e., authorized capital stock, outstanding capital stock, and paid-up capital), and (f) alien subscribers.
6. Payment of registration/filing fees
The SEC requires payment of registration or filing fees, which shall be based on the amount of the authorized capital stock or 1/5 of 1% of the authorized capital but not less than PhP2,0000.00, or the subscription price of the subscribed capital stock (whichever is higher).
There are also other mandatory fees such as (a) legal research fee amounting to 1% of the filing fee but not less than PhP10.00, (b) PhP1,010.00 filing fee for By-Laws, and (c) application fee under the FIA of PhP3,030.00 (if applicable).
C. Important Reminders
If the registration documents (i.e., Articles of Incorporation, By-Laws) are executed abroad, the documents must be notarized and apostillized. If the foreign country where the documents are signed is not a party to the Apostille Convention, the documents must be authenticated before the Philippine consul with jurisdiction over that country.
Note that SEC registered companies are also required to register with other government agencies within the periods prescribed by law. These government entities/agencies include the (a) local government units where the principal office is located, (b) the Bureau of Internal Revenue (BIR), (c)Social Security System (SSS), (d) Home Development Mutual Fund (Pag-ibig), (e) Philippine Health Insurance Corporation (PhilHealth), and (f) the Department of Labor and Employment (DOLE).
If the company fails to register with the foregoing government agencies within the prescribed periods, it will be liable to pay penalties for late registration. Registrations with other government agencies immediately after incorporation is commonly known as the “Post-Incorporation” process (Post-Incorporation process shall be discussed in a separate article.)
Lastly, the company is required to pay the documentary stamp tax (“DST”) due on the original issuance of shares. Under Section 175 of our Tax Code, a DST of 1.00% is due on the original issuance of shares, which is based on the total par value of the shares. The DST should be paid on or before the 5th day following the close of month when the taxable document was signed or issued (i.e., the date when the company registration is approved as indicated in the Certificate of Incorporation). If the DST is not paid on time, the company shall be liable to pay penalties and interests.
The foregoing are only the general processes and requirements. If the company to be incorporated consists of international investment and/or requires a secondary license to operate a government-regulated business, it is best to engage the assistance of a corporate lawyer in the Philippines.
*Arceo & Tandoc Law Firm is a corporate law office in Quezon City, Metro Manila that serves both local and foreign investors who want to set up a company in the Philippines. Its corporate lawyers have an extensive experience in foreign investments, incorporation, and other business law matters. Should you wish to learn how to register a corporation in the Philippines, you may contact us at firstname.lastname@example.org to get in touch with any of our corporate attorneys.