Sole Proprietorship Business Registration – Philippines
A Sole Proprietorship is a business structure owned by an individual who generally has full control and authority over the business. The business owner is referred to as the “sole proprietor” and exclusively owns all assets and profits of the business. He or she is also personally liable for all the debts and losses that the business might incur.
As the simplest form of business in the Philippines, the business registration process for a sole proprietorship is relatively easy. Sole proprietorships are also the easiest to run since they do not have the same formalities and regulations that corporations and partnerships have, such as board meetings, board elections, share capital, etc.
How to Register a Sole Proprietorship in the Philippines
Since the law treats the owner and the business as the same, the sole proprietor only needs to register his or her name with the Department of Trade and Industry (DTI) and secure local licenses and permits to commence business operations.
Here’s a step-by-step process for registering a sole proprietorship in the Philippines:
- Register a business name with DTI to acquire a DTI Certificate of Registration;
- Register with the Barangay Office where the business is going to be located to acquire a Barangay Certificate of Business Registration;
- Register with the Mayor’s Office to acquire a Mayor’s Permit; and
- Register with the Bureau of Internal Revenue (BIR) to acquire a Certificate of Registration.
Advantages of a Sole Proprietorship
- Requires a minimum amount of capital
- Minimal regulations and compliance requirements from government agencies
- Easy to register
- Sole proprietor has complete control of the business
- Easy to manage, with no necessary formalities or regulations about having a board of directors, committee, or meeting minutes
- Sole proprietor acquires all assets and profits of the business and can freely mix business and personal assets
Disadvantages of a Sole Proprietorship
- Sole proprietor is subject to unlimited personal liability for the debts, losses, and liabilities of the business
- Sole proprietor cannot raise capital by selling an interest in the business or obtain capital funding through established channels
- No clear-cut definition between personal and business income because the sole proprietor is personally liable for the income tax of the business
- Sole proprietorships rarely survive the death or incapacity of their owners and hence do not retain value
- Business bankruptcy affects the owner personally
- Personal lawsuits against the sole proprietor can potentially consume all their personal assets and negatively affect the financial aspects of the business
- Lawsuits filed against the business are also deemed as lawsuits filed against the owner; creditors of the owner or of the business itself can reach both the business and the owner’s personal assets, and if such lawsuits are successful, the owner is obligated to pay the damages with his or her own money
Most small businesses in the Philippines start as sole proprietorships and progress to other business structures as they mature and increase profit. Since the Philippines does not adopt the legal concept of Limited Liability Company (LLC) or Private Limited Company (PLC) like many countries such as the United States of America, United Kingdom, and Singapore, the closest entity that Philippine sole proprietorships commonly transition to is a domestic corporation. A domestic or subsidiary corporation is a set of juridical persons established under the Corporation Code of the Philippines and regulated by the Securities and Exchange Commission (SEC). Unlike sole proprietorships, the legal entity of domestic corporations is distinct from their company owners so individual assets are separate from those of the company. Liabilities are also limited to the amount of an owner’s share capital.