Incorporation Requirements and Process in the Philippines

Incorporation Requirements and Process in the Philippines

Introduction

Incorporation in the Philippines refers to the legal process of forming a corporation, a distinct juridical entity separate from its owners, governed primarily by the Revised Corporation Code of the Philippines (Republic Act No. 11232, enacted in 2019, amending the old Corporation Code, Batas Pambansa Blg. 68). This law modernized corporate formation to promote ease of doing business, reduce bureaucratic hurdles, and attract investments. Corporations enjoy perpetual existence (unless otherwise specified), limited liability for shareholders, and the ability to raise capital through shares. The process is overseen by the Securities and Exchange Commission (SEC), with additional requirements for specific industries under other regulatory bodies like the Bangko Sentral ng Pilipinas (BSP) for banks or the Insurance Commission for insurers. This article exhaustively covers the requirements, step-by-step process, types of corporations, costs, timelines, post-incorporation obligations, common pitfalls, and relevant jurisprudence, providing a complete guide within the Philippine legal framework.

Types of Corporations

Before incorporation, understanding the corporate form is essential:

1. Stock Corporations: Issue shares of stock, divided into common (voting) and preferred (priority dividends). Minimum capital varies by industry but starts at ₱5,000 for general purposes.

2. Non-Stock Corporations: For non-profit purposes like charities, foundations, or associations. No shares issued; members have voting rights. Examples include religious, educational, or civic organizations.

3. One Person Corporations (OPCs): Introduced by RA 11232, allowing a single natural person, trust, or estate to form a corporation without a board of directors (single stockholder acts as president and treasurer). Ideal for solo entrepreneurs.

4. Special Corporations:

   • Close Corporations: Limited to 20 stockholders, with restrictions on share transfers.
   • Educational Corporations: Regulated by the Commission on Higher Education (CHED) or Department of Education (DepEd).
   • Religious Corporations: Sole (one incorporator) or aggregate (multiple).
   • Foreign Corporations: Must secure a license to do business if operating in the Philippines, subject to foreign ownership limits under the Foreign Investments Act (RA 7042, as amended).

Foreign equity restrictions apply: 100% foreign ownership allowed in most sectors except those in the Negative List (e.g., mass media at 0%, public utilities at 40% max foreign).

Pre-Incorporation Requirements

Incorporation demands careful preparation to ensure compliance:

1. Incorporators: At least two but not more than 15 natural persons of legal age (18+), majority Philippine residents. For OPCs, one incorporator suffices. Incorporators need not be stockholders but must subscribe to at least one share (for stock corporations).

2. Capital Requirements:

   • Minimum paid-up capital: ₱5,000 for domestic stock corporations (RA 11232 removed the old ₱5,000 minimum subscription requirement).
   • For OPCs: No minimum capital, but must indicate "OPC" in the name.
   • Higher thresholds for regulated industries (e.g., ₱100 million for banks under RA 8791).
   • 25% of authorized capital must be subscribed, and 25% of subscribed paid-up at incorporation (waivable for OPCs).

3. Corporate Name: Unique and not similar to existing entities. Must include "Corporation," "Corp.," "Incorporated," or "Inc." (or "OPC" for one-person). Reserved via SEC's online system for 30-90 days.

4. Principal Office: Must be in the Philippines, specified in articles of incorporation. Virtual offices allowed under SEC guidelines.

5. Term: Perpetual unless specified (up to 50 years, renewable).

6. Directors/Trustees: 2-15 members, majority Philippine residents. For OPCs, the single stockholder serves as director.

7. Treasurer's Affidavit: Certifying subscription and payment of capital.

8. Other Documents for Special Cases:

   • Endorsement from relevant agencies (e.g., DOH for hospitals).
   • For foreign-owned: Proof of inward remittance if foreign capital exceeds 40% in restricted sectors.

Step-by-Step Incorporation Process

The process is digitized via the SEC's Electronic Simplified Processing of Application for Registration of Companies (eSPARC), launched in 2020, allowing online submission.

1. Name Verification and Reservation:

   • Access SEC i-Register online.
   • Search for availability; reserve for ₱100 (30 days) to ₱300 (90 days).
   • Prohibited names: Those implying government affiliation or using restricted words like "bank" without approval.

2. Preparation of Documents:

   • Articles of Incorporation (AOI): Includes name, purpose, office, term, incorporators, shares (authorized, subscribed, paid-up), and other details (SEC Form No. F-100).
   • By-Laws: Internal rules on meetings, officers, etc. (can be adopted post-incorporation within one month).
   • Treasurer's Affidavit.
   • Joint Undertaking to Change Name (if similar to existing).
   • For OPCs: Written undertaking by single stockholder.
   • IDs and TINs of incorporators.

3. Online Submission and Payment:

   • Upload via eSPARC or SEC's website.
   • Pay fees: Basic ₱2,000 + 1% of authorized capital (min ₱2,000) + legal research fee (1% of filing fee) + by-laws fee (₱510).
   • Additional for stock: Stock and transfer book fee (₱310).

4. SEC Review and Approval:

   • Automated pre-processing; manual review for completeness.
   • Timeline: 1-3 business days for straightforward applications (RA 11232 mandates 3-day processing).
   • Issuance of Certificate of Incorporation upon approval.

5. Post-Approval Steps:

   • Obtain digital certificate via email.
   • Register books (stock/transfer, minutes) with SEC.

Post-Incorporation Requirements

Compliance continues after incorporation:

1. Tax Registrations:

   • Bureau of Internal Revenue (BIR): Secure TIN, register books, obtain Certificate of Registration (Form 2303). Pay documentary stamp tax on shares (₱1.50 per ₱200 par value).
   • Value-Added Tax (VAT) if applicable.

2. Local Government Permits:

   • Barangay clearance, Mayor's permit, sanitary permit.
   • Register with PhilHealth, SSS, Pag-IBIG for employees.

3. Annual Obligations:

   • General Information Sheet (GIS) and Audited Financial Statements (AFS) submission to SEC within 120 days of fiscal year-end.
   • Annual reportorial requirements; non-compliance leads to fines (₱1,000 to ₱10,000) or revocation.

4. For Foreign Corporations:

   • License to do business: Deposit securities (₱500,000 min), appoint resident agent.

5. Corporate Governance:

   • Elect officers (president, treasurer, secretary—must be resident).
   • Hold annual meetings.
   • Comply with SEC's Corporate Governance Code.

Costs and Timelines

• Costs: ₱5,000-₱20,000 for basic domestic corporation (filing fees, notarization, publications if needed). Higher for capitalized entities.
• Timelines: 3-7 days via eSPARC; up to 30 days for complex cases.
• Expedited options available for priority sectors under the Ease of Doing Business Act (RA 11032).

Common Pitfalls and Remedies

• Incomplete Documents: Leads to rejection; remedy by resubmission.
• Name Conflicts: Resolve via amendment (₱2,000 fee).
• Undercapitalization: Amend AOI to increase capital.
• Non-Compliance: Penalties include suspension or dissolution (SEC vs. court-initiated).
• Foreign Ownership Violations: Fines up to ₱1 million or imprisonment.

Jurisprudence and Policy Developments

Supreme Court rulings guide interpretation:

• SEC v. CA (G.R. No. 119794, 1997): Affirmed SEC's authority over incorporation.
• Premium Marble Resources v. CA (G.R. No. 96551, 1996): Emphasized separate personality doctrine.
• Recent SEC opinions (e.g., on OPCs) clarify single stockholder liabilities.

Policy shifts: RA 11534 (CREATE Act, 2021) reduced corporate income tax to 20-25%, enhancing attractiveness. Digitalization under SEC's SECure system (2023) further streamlined processes.

Conclusion

Incorporation in the Philippines, bolstered by RA 11232's reforms, is efficient and investor-friendly, fostering economic growth while safeguarding interests. Prospective incorporators must meticulously prepare documents and comply with post-registration duties to avoid sanctions. Consulting legal professionals or the SEC is advisable for tailored advice, ensuring alignment with the Constitution's promotion of private enterprise (Article XII, Section 20). This process not only creates a legal entity but also contributes to the nation's entrepreneurial ecosystem.