One Person Corporation Lending Business Legality Philippines

Legality and Regulatory Framework in the Philippines

I. Introduction

The One Person Corporation (OPC) is a relatively new corporate vehicle introduced by the Revised Corporation Code (RCC) of the Philippines (Republic Act No. 11232). It allows a single stockholder to form a corporation with separate juridical personality and limited liability.

Because lending can be a profitable but heavily regulated activity, many entrepreneurs ask:

“Can I use an OPC to run a lending business in the Philippines, and if so, under what rules?”

This article explains, in the Philippine legal context:

  • Whether an OPC can engage in lending activities;
  • How lending laws and regulations apply to an OPC;
  • The limitations, licenses, and compliance obligations; and
  • Practical structuring issues (especially for foreigners and online lending).

II. Legal Framework

Several bodies of law intersect when an OPC engages in lending:

  1. Revised Corporation Code (RA 11232) – creates and regulates OPCs.
  2. Lending Company Regulation Act (RA 9474) – regulates lending companies.
  3. Financing Company Act (RA 8556) – regulates financing companies (also in the credit business but broader operations).
  4. Bangko Sentral ng Pilipinas (BSP) regulations – govern banks and quasi-banks (which an OPC cannot be).
  5. Civil Code, Consumer laws, and special regulations – cover interest, unconscionable charges, truth in lending, collection practices, data privacy, and related issues.
  6. Tax laws – govern income tax, documentary stamp tax, and possible percentage/gross receipts tax on lending income.

To understand legality, you need to see how all of these fit together.

III. What Is a One Person Corporation?

Under the RCC:

  • An OPC is a corporation with a single stockholder, who may be:

    • A natural person;
    • A trust; or
    • An estate.

  • Key features:

    • Only one stockholder, who is also the sole director.
    • No need for a board with multiple directors.
    • The single stockholder can be both President and other officers, subject to some role-combination rules.
    • Corporate name must bear the suffix “OPC”.

  • Who may NOT be an OPC? The RCC prohibits certain businesses from taking the OPC form, such as:

    • Banks
    • Quasi-banks
    • Pre-need companies
    • Trust companies
    • Insurance companies
    • Publicly-listed companies
    • Government-owned or -controlled corporations

Notably, lending companies and financing companies are not expressly on this prohibited list. That is the first sign that an OPC may theoretically be allowed to engage in lending — but subject to lending-specific laws.

IV. The Lending Company Regulation Act and Lending Business

RA 9474 defines a lending company generally as a corporation engaged in granting loans from its own funds to the public, for profit, on a regular and habitual basis.

Key points:

  • Only corporations may be licensed as lending companies under RA 9474 (sole proprietors and partnerships are not covered by that law, although they may still be engaged in lending subject to other rules).
  • A lending company must be registered with the SEC and must obtain a Certificate of Authority (CA) to operate as a lending company, in addition to its primary corporate registration.
  • There is a minimum paid-in capital requirement (traditionally at least ₱1,000,000, or higher if adjusted by regulations).
  • A lending company is forbidden from accepting deposits or engaging in functions of a bank or quasi-bank.

In essence:

If an OPC wants to regularly engage in the business of granting loans to the public for profit, it must comply with RA 9474 and SEC regulations for lending companies, not just corporate law.

V. Can an OPC Legally Be a Lending Company?

1. Compatibility of OPC with RA 9474

RA 9474 requires a corporation; the RCC says an OPC is a corporation with a single stockholder. There is nothing in RA 9474 that requires multiple incorporators. Therefore, on the face of the statutes:

  • An OPC can serve as the corporate vehicle for a lending company, provided it obtains:

    • SEC registration as a corporation (OPC), and
    • A Certificate of Authority as a lending company.

2. Foreign Ownership Restrictions

RA 9474 also imposes foreign ownership limits (traditionally, at least a majority of the voting capital must be owned by Filipino citizens, and foreign ownership is generally capped).

Because an OPC has only one stockholder:

  • If the sole stockholder is foreign, then 100% foreign ownership results.
  • If the law or regulations limit foreign ownership to, say, 49%, an OPC whose single shareholder is foreign would violate this limit.

Implication:

  • For a lending business where foreign ownership is restricted, an OPC used as the lending company must have a Filipino single stockholder (or otherwise satisfy the nationality rules).
  • A foreigner who wants to participate in a lending company might have to use a traditional stock corporation with multiple shareholders to comply with ownership caps.

3. Prohibition on Banking and Quasi-Banking

The RCC explicitly bars OPCs from being banks or quasi-banks. Lending companies are non-bank financial institutions, provided they do not:

  • Accept deposits from the public; or
  • Engage in activities that fall under quasi-banking.

Therefore:

  • An OPC lending company must be careful not to cross the line into deposit-taking or offering bank-like products, or it would not only violate lending laws but also the RCC prohibition on OPCs engaging in banking/quasi-banking.

VI. How an OPC Lending Company Is Formed (Two-Layer Registration)

To legally operate, an OPC in the lending business typically goes through two phases:

1. Phase 1 – Register as an OPC with the SEC

  • Choose a corporate name containing “Lending Corporation” or other required term under RA 9474, plus the suffix “OPC”.

  • Prepare and file:

    • Articles of Incorporation for an OPC;

    • Identification of:

      • The single stockholder (must meet nationality rules if foreign ownership is capped);
      • The Nominee and Alternate Nominee who will manage the corporation if the single stockholder dies or becomes incapacitated;
      • The principal place of business;
      • The corporate purposes, clearly including “engaging in lending business in accordance with RA 9474”, etc.

  • Pay capital and filing fees.

This grants juridical personality as an OPC, but not yet authority to act as a lending company.

2. Phase 2 – Obtain a Certificate of Authority as Lending Company

Separate from incorporation, the entity must:

  • Apply with the SEC’s division handling lending and financing companies for a Certificate of Authority (CA).

  • Submit:

    • Proof of paid-in capital meeting the statutory/regulatory minimum;
    • NBI / police clearances and “fit and proper” documentation for the single stockholder and officers;
    • Business plan, internal controls, and details of operations;
    • Proof of office and other location requirements.

Only upon issuance of the CA may the OPC lawfully start lending to the public as a lending company.

Operating a lending business without this CA is illegal, even if your OPC is properly registered as a corporation.

VII. Distinguishing Lending Companies from Financing Companies and Banks

It is also important to distinguish between:

  1. Lending Companies (RA 9474)

    • Primarily make loans from their own capital to individuals or businesses;
    • Often focused on smaller, unsecured loans, salary loans, personal loans, micro-loans, etc.

  2. Financing Companies (RA 8556)

    • May provide loans and credit under more sophisticated financing schemes, including discounting receivables, leasing, or other commercial financing.
    • Also require SEC registration and a separate CA, and are subject to specific capitalization and nationality rules.

  3. Banks and Quasi-Banks (BSP-regulated)

    • Authorized to accept deposits and perform broader financial services;
    • Require a special type of charter and are generally not allowed to be OPCs under the RCC.

An OPC can be a lending company or financing company (subject to sector rules) but cannot be a bank or quasi-bank.

VIII. Scope of Permitted Lending Activities for an OPC

An OPC that is duly licensed as a lending or financing company may:

  • Grant loans to the public from its own funds;

  • Charge interest and other allowable fees, subject to:

    • The Civil Code rules on obligations and contracts;
    • Regulated disclosure and lending rules;
    • Prohibitions on unconscionable or iniquitous charges;
    • Any specific ceilings or guidelines imposed by regulators over certain types of loans.

However, it may not:

  • Accept deposits from the public;
  • Perform trust banking activities;
  • Act as a bank or quasi-bank;
  • Typically, use the word “bank” or similar in its corporate name.

IX. Interest Rates and Charges: Usury, Unconscionability, and Consumer Protection

The old Usury Law ceilings are no longer actively enforced as fixed limits, but:

  • Courts may still strike down interest rates and penalties that are excessive, unconscionable, or iniquitous, applying Civil Code principles.
  • Certain regulators have issued guidelines on acceptable interest and finance charges for specific sectors.

An OPC lending company must:

  • Clearly disclose:

    • Nominal and effective interest rates;
    • Processing fees, service charges, and other add-ons;
    • Penalties for late payment;
    • Any collateral and security arrangements.

  • Avoid hidden charges and misleading advertising.

  • Ensure loan contracts are written in clear, understandable language.

Consumer and credit laws may also regulate:

  • Advertising and marketing of credit products;
  • Standard form contracts and unfair terms;
  • Collection practices (prohibiting harassment, shaming, or abusive tactics);
  • Data privacy, especially for digital lenders who access clients’ contact lists or personal data.

X. Online and App-based Lending Under an OPC

If an OPC intends to operate online (through a website or mobile app):

  • It remains subject to all the same licensing requirements as traditional brick-and-mortar lenders.

  • It must also comply with:

    • Data Privacy Law on collection and handling of personal information;
    • Any specific rules issued against abusive online collection practices;
    • Electronic commerce rules regarding electronic contracts, signatures, and notices.

The legal principle is: “Going online does not remove the need for a lending license.” An unregistered online OPC-lender is still illegally operating a lending company.

XI. Corporate Governance and Liability in an OPC Lending Company

Although an OPC has a single stockholder, there are still corporate governance and liability considerations:

  1. Single Stockholder as Director/Officer

    • The sole stockholder is also the sole director and typically acts as President.
    • The law still expects appropriate internal controls and documentation, especially in a regulated business like lending.

  2. Nominee and Alternate Nominee

    • The OPC must designate a Nominee and Alternate Nominee who will manage the corporation in case of the stockholder’s death or incapacity.
    • This is important for continuity in a lending business with ongoing loan agreements.

  3. Limited Liability, but with Exceptions Generally, the stockholder’s liability is limited to the amount of capital invested. However, liability may pierce the corporate veil when:

    • The OPC is used to defraud creditors or circumvent the law;
    • There is commingling of personal and corporate funds;
    • Gross undercapitalization and clear bad faith in running a high-risk lending business;
    • Personal guarantees are signed in favor of creditors or investors.

  4. Regulatory “Fit and Proper” Tests

    • In financial businesses, regulators can bar individuals with bad records, prior violations, or convictions from owning or managing lending companies.

XII. Taxation of an OPC Engaged in Lending

From a tax perspective:

  1. The OPC is a corporation, so it pays corporate income tax on net taxable income (with applicable rates and special provisions in effect under current tax law).

  2. It may be subject to:

    • Value-Added Tax (VAT) or percentage tax on its services, depending on thresholds and classification;
    • In some cases, gross receipts tax on interest and similar income, especially if treated as a non-bank financial intermediary under tax laws;
    • Documentary stamp tax (DST) on loan documents and credit extensions.

  3. The single stockholder will face tax on:

    • Dividends received from the OPC; and
    • Any salary or compensation as an officer, subject to withholding.

Tax considerations often influence:

  • How much capital to inject;
  • Whether to borrow from banks and relend;
  • How to structure cross-border arrangements for foreign investors.

Professional tax advice is highly recommended for a lending-focused OPC.

XIII. When Does an OPC Need a Lending License vs. Ordinary Corporate Credit?

Some OPCs have a different primary business (e.g., trading, services) but also occasionally lend money. The key question is:

“At what point does my OPC become a ‘lending company’ that needs a License and CA?”

In general:

  • Isolated or incidental loans (e.g., advances to employees, loans to a small number of affiliates) may not make the OPC a lending company.
  • Once the OPC regularly and habitually offers loans to the public for profit, it will be considered engaged in lending under RA 9474, and a license is required.

Indicators of “engaged in lending” include:

  • Advertising to the public that loans are available;
  • Having a structured loan product, standard loan forms, and regular lending operations;
  • Charging interest and profit margins on a recurring basis.

Failure to obtain a CA in such circumstances can expose the OPC and its sole stockholder to admin, civil, and criminal liability.

XIV. Common Compliance Pitfalls for OPC Lending Companies

Some recurring issues:

  1. Operating without a Certificate of Authority

    • Incorporating as an OPC then immediately offering loans without the CA.

  2. Failure to Observe Capital Requirements

    • Under-capitalizing the OPC but making large lending exposures, potentially leading to regulatory sanctions.

  3. Using Misleading or Aggressive Collection Practices

    • Harassing borrowers, threatening violence or shaming, or misusing contact lists; this can result in serious regulatory action.

  4. Excessive and Hidden Charges

    • Adding multiple undisclosed fees, or burying important terms in fine print, inviting complaints and legal challenges.

  5. Not Keeping Proper Records

    • Poor loan documentation, lack of board or stockholder resolutions (even for an OPC, certain actions require corporate formalities), inconsistent books.

  6. Non-compliance with Anti-Money Laundering (AML) Expectations

    • Larger or more sophisticated OPC-lenders may fall under AML regulations or at least be expected to know their customers (KYC) and monitor suspicious transactions.

XV. Step-by-Step Overview: Setting Up a Legal OPC Lending Business

For a Filipino entrepreneur (or a structure compliant with foreign ownership rules), a rough roadmap looks like:

  1. Confirm Ownership Eligibility & Business Model

    • Ensure the planned lending business complies with foreign equity limits and does not cross into banking/quasi-banking.

  2. Organize an OPC Under the RCC

    • Prepare OPC Articles of Incorporation with lending as a primary purpose.
    • Identify the single stockholder, Nominee, and Alternate Nominee.
    • Secure SEC registration as an OPC.

  3. Raise and Deposit the Required Paid-In Capital

    • Meet or exceed RA 9474’s minimum capital and any updated SEC requirements.

  4. Apply for a Certificate of Authority as a Lending Company

    • Submit all required documents, clearances, and business plans to the SEC.
    • Wait for the CA before launching operations.

  5. Set Up Internal Policies and Systems

    • Loan documentation templates;
    • Credit evaluation guidelines;
    • Legal and regulatory compliance policies;
    • Data privacy and fair collection practices.

  6. Comply with Ongoing Regulatory Duties

    • Periodic reports to the SEC;
    • Renewal of licenses or registrations as needed;
    • Payment of taxes and regulatory fees;
    • Updating corporate records and books under the RCC.

XVI. Conclusion

A One Person Corporation can, in principle, be used as a vehicle for a lending business in the Philippines, provided that:

  • It is properly organized as an OPC under the Revised Corporation Code;
  • It fully complies with the Lending Company Regulation Act (RA 9474) and related regulations, including obtaining a Certificate of Authority from the SEC;
  • It respects foreign equity limitations (which may effectively require that the OPC’s single stockholder be Filipino for a lending company);
  • It does not engage in banking or quasi-banking, nor accept deposits from the public; and
  • It adheres to consumer protection, fair collection practices, tax obligations, and financial-sector regulatory standards.

Because lending is a heavily regulated, high-risk activity, and because an OPC concentrates ownership and decision-making in a single person, it is especially important to:

  • Structure the OPC properly,
  • Maintain strong internal controls, and
  • Obtain specialized legal, regulatory, and tax advice before and during operations.

This article provides a legal framework and conceptual map, but specific structures and compliance strategies should always be tailored to the exact facts and current regulations applicable at the time of planning and operation.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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