When it comes to ensuring business success the biggest decision that one has to make is the type of business entity he wants to operate in. Under the Philippine commercial and legal setting, there are several choices available to the business owner. The business owner may opt to operate as a corporation, single proprietorship, or partnership; it all depends on the type of business and business needs of the registrant.
As to Compliance Requirements
The degree of compliance requirements will depend on the type of entity to be registered. Registering as a corporation has a set of requirements different with those required when registering as a proprietorship or partnership. Another factor of difference between these entities is the government authority with whom to register. For corporations and partnerships, these entities must be registered with the Security and Exchange Commission (SEC) in order to secure the needed certificate of registration. On the other hand, single proprietorship must be registered with the Bureau of Trade Regulation and Consumer Protection of the Department of Trade and Industry (DTI). The type of entity to be registered will all depend on the type of business.
As to Liability
Just like the registration requirements, the liabilities of each of these entities differ from each other. For corporations, the law considers it a separate entity from those who are composing it. This means that whatever is the liability of the corporation cannot be enforced against its stockholders or people composing it. However, this is subject to certain exceptions which mean that stockholders can still be held liable with their personal properties when they are doing illegal activities and using the corporation as medium or scheme.
For partnerships, the partners can still be held liable with their personal properties. However, under the Civil Code of the Philippines if the partners are made liable for their personal properties it will only be up to the extent of the capital they contributed to the partnership fund and nothing more.
For a sole proprietorship, the owner and the entity registered is not considered separate hence the owner can be held liable for the liabilities of the entity.
As to Tax Compliance and Requirements
When it comes to taxation aspect, each entity is treated differently. Because of the different tax treatment, it also means that each entity also enjoys different tax incentive. For corporations, the law has given it wider tax requirements and tax incentive compared to partnerships and sole proprietors. This is because corporations have more complex requirements to complete and offers more potential for business compared to the other 2 option entities.
The tax imposed on these entities is progressive, meaning that the rate of tax will depend on the amount of profit declared earned. Each entity has a different tax rate to comply with, as to which entity has the advantage over the other, the choice would have to be the corporation because the Philippine Tax Code gives certain tax amnesty to corporations which are not given to sole proprietorship and partnership.
As to the Effect Death of Persons Composing It
Business continuity is very important for businesses. Unfortunately, under the applicable Philippine laws it imposes different treatment on each of these entities when it comes to continuity of business. For corporations, the death of an incorporator or person who organized the entity does not affect the business of the corporation. This is because a corporation has a separate and distinct personality from the persons composing it. When it comes to partnerships, the death of a partner generally results in the dissolution of the partnership and same goes with a sole proprietorship.
As to Effectiveness of Management of Affairs
When it comes to the management of business affairs the phrase two heads are better than one is usually applicable. Corporations always have an advantage on this aspect because it is structured under the law to be managed by a board. The same concept goes with partnership but with slight limitations because there are decisions that are decided upon by one partner instead of all the partners involved; unlike the corporate set-up where major decisions are always decided by the board. For the sole proprietorship, being owned by an individual, management is usually in the hands of the registered proprietor.
The decision on whether to incorporate or not will depend on the following abovementioned factors. The important thing is that the entity is registered under the Philippine legal system in order to obtain the necessary documents and license to operate. To determine what type of registration best suits your business, Brealant Inc. can provide options for you and process the registration of your choice.