CHOOSING the right legal structure is one of the first important decisions an entrepreneur must make when starting a business in the Philippines. For many, this comes down to two popular options: the one-person corporation (OPC) and the traditional domestic corporation. Understanding the distinctions between these two entities (and no, it’s not just about the number of incorporators you should consider) can help entrepreneurs select the model that best suits their business goals.
Background
The OPC structure took effect in 2019 through the Revised Corporation Code. Prior to this, Filipino law required at least five incorporators to form a corporation. The OPC allows for greater flexibility by enabling a single individual to enjoy the benefits of corporate structure without the need for partners or shareholders.
On the other hand, the domestic corporation, often referred to as a regular corporation, has long been the traditional route for businesses in the country. Under the revised law, this entity requires a minimum of two, but no more than 15, shareholders. This model is preferred by those with cofounders, family businesses or companies that will want to invite investors and other stakeholders.
Process
The OPC registration process is straightforward. An entrepreneur must provide the following to the Securities and Exchange Commission (SEC):
– Articles of Incorporation.
– A written statement outlining the nominee and alternate nominee who would take over in the event of the owner’s incapacity or death.
– Proof of identity.
– Treasurer’s affidavit and other standard documents like the business name registration.
Domestic corporations require a more extensive procedure due to the need for multiple incorporators. It involves:
– Submitting a list of at least two incorporators.
– Drafting bylaws (which are optional for an OPC).
– Issuing shares and appointing corporate officers.
– Having a board of directors to oversee governance.
Regarding costs, both OPCs and domestic corporations share similar filing fees at the SEC, although an OPC may benefit from quicker processing time since fewer stakeholders are involved.
Key difference
One of the most notable differences between an OPC and a domestic corporation is the number of shareholders. As the name implies, an OPC requires only one person to incorporate and run the company. This is best for solo entrepreneurs who wish to have complete control over the business.
However, the owner of an OPC cannot be a natural person licensed to practice a profession, such as lawyers or accountants, who are prohibited from forming an OPC for their professional practice.
On the other hand, a domestic corporation needs at least two shareholders. These shareholders can elect a board of directors to manage the corporation, ensuring a more collaborative and democratic decision-making process.
A domestic corporation is also an entity that allows foreigners to be shareholders. To be recognized as a Philippine corporation, the shareholders must follow a 40/60 rule in which the majority shareholders are Philippine citizens. This structure may be more fitting for businesses with multiple investors or those intending to grow by bringing in new partners.
The OPC and domestic corporation are treated as separate legal entities from their owners. This means that the owners’ liability is limited to their capital investment in the company. The company’s debts or liabilities cannot be claimed from personal assets, which provides protection to business owners.
In the case of continuity, an OPC must appoint a nominee and an alternate nominee at the time of incorporation. These individuals will take over management of the OPC in case the original owner is incapacitated or dies.
In contrast, a domestic corporation has the flexibility of being passed on through the shares owned by individuals, and the board and shareholders maintain its continuity.
Pros, cons
Setting up an OPC gives the owner full control of the company, thus, having decisions made quicker. Since it needs only one person, the registration process is faster and this entity doesn’t require bylaws.
However, with this setup, there may be limited growth potential should the founder want to raise capital and invite investors. In addition, in case the owner dies, transferring the company can be complicated.
On the other hand, a domestic corporation makes inviting investors and new partners easier, making it the entity with more growth potential. This is also the only entity that allows having foreign partners. This entity also requires a board of directors, which can ensure the company is making strategic decisions.
However, the registration process won’t be as quick as there are more requirements, such as bylaws. In addition, should the shareholders come into conflict, this may add complications to the company.
Conclusion
For aspiring Filipino entrepreneurs, choosing between a one-person corporation and a domestic corporation hinges on the business’ goals and structure. The OPC is a great option for sole entrepreneurs who want complete control and a simpler incorporation process.
In contrast, a domestic corporation is better suited for businesses aiming for growth, collaboration and more structured governance.
Both entities offer advantages and limitations, so it’s important to evaluate which legal entity aligns with your long-term vision before proceeding with incorporation.
Permitly Philippines is a trusted partner for fast and secure business registration services. With over 19 years of experience, it specializes in simplifying the complex processes of setting up a business in the Philippines. From handling government permits to offering virtual office solutions, it provides a stress-free experience for entrepreneurs. Whether registering a sole proprietorship, corporation or one-person corporation, there are tailored packages to fit one’s needs. Contact +63 2 7902 0988 or visit www.permitly.ph.
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