Setting Up a One Person Corporation for Freelancers in the Philippines

Introduction

In the evolving landscape of the Philippine economy, freelancers have become a significant force, offering services in fields such as graphic design, writing, software development, consulting, and digital marketing. However, operating as a sole proprietor exposes freelancers to unlimited personal liability, where personal assets can be at risk in case of business debts or legal disputes. To address this, the Philippine government introduced the One Person Corporation (OPC) through Republic Act No. 11232, also known as the Revised Corporation Code of the Philippines (RCC), which took effect on February 23, 2019. An OPC allows a single individual to form a corporation, enjoying the benefits of limited liability while maintaining full control over the business.

This legal structure is particularly appealing to freelancers who wish to professionalize their operations, scale their services, or engage in international contracts that prefer dealing with corporate entities. Unlike traditional corporations requiring multiple incorporators, an OPC simplifies the process for solo entrepreneurs. This article provides a comprehensive guide to setting up an OPC in the Philippine context, covering legal foundations, requirements, procedures, advantages, challenges, and ongoing obligations. Note that while this overview is based on established Philippine corporate law, consulting a licensed attorney or the Securities and Exchange Commission (SEC) is recommended for personalized advice, as laws and regulations may evolve.

Legal Basis and Key Features of an OPC

The OPC is enshrined in Sections 115 to 131 of the Revised Corporation Code. It defines an OPC as a corporation with a single stockholder who must be a natural person of legal age, a trust, or an estate. For freelancers, the natural person route is most common, allowing the individual to serve as the sole incorporator, stockholder, director, and president.

Key features distinguishing an OPC from other business forms include:

Single Ownership: Only one stockholder, eliminating the need for partners or shareholders.
Limited Liability: The stockholder's liability is limited to their investment in the corporation, protecting personal assets from business obligations.
Perpetual Succession: The OPC has perpetual existence unless otherwise stated in the articles of incorporation, surviving the death or incapacity of the stockholder.
Separate Legal Personality: The OPC is treated as a distinct entity from its owner, enabling it to own property, enter contracts, sue, and be sued in its own name.
No Minimum Capital Requirement: Under the RCC, there is no prescribed minimum authorized or paid-up capital stock unless required by special laws (e.g., for banking or insurance). However, the stockholder must subscribe to at least one share, and at least 25% of the authorized capital must be subscribed, with 25% of the subscribed capital paid up at incorporation.
Nominee System: To ensure continuity, the single stockholder must designate a nominee and an alternate nominee who can take over in case of death or incapacity.

OPCs are classified as ordinary stock corporations and can engage in any lawful business activity, except those reserved for special corporations (e.g., public utilities requiring Filipino ownership or professional corporations for regulated professions like law or medicine). Freelancers in non-regulated fields can readily use an OPC, but those in professional services may need to form a professional corporation instead, which requires multiple licensed professionals.

Eligibility and Requirements for Freelancers

Freelancers eligible to form an OPC must be:

A natural person of legal age (at least 18 years old).
A Philippine resident or non-resident, though foreigners are subject to foreign investment restrictions under the Foreign Investments Act (e.g., limited to 40% ownership in certain sectors).
Not engaged in activities requiring special permits or licenses that prohibit OPC structures.

Essential requirements include:

Corporate Name: Must include "OPC" at the end (e.g., "Freelance Designs OPC"). The name should be unique and not misleading.
Articles of Incorporation (AOI): A simplified AOI must be prepared, including the corporate name, purpose, principal office, term of existence (perpetual unless specified), authorized capital stock, subscriber details, and the names of the nominee and alternate nominee.
Bylaws: Optional under the RCC, but recommended for internal governance. If not submitted at incorporation, they must be adopted within one month.
Officers: The single stockholder automatically becomes the president and sole director. They must appoint:
- A treasurer (who can be the stockholder themselves).
- A corporate secretary (who cannot be the president or treasurer; often a trusted third party or lawyer).
- Optionally, other officers like a compliance officer.
Nominees: The nominee and alternate must be natural persons of legal age, consenting in writing to act as incorporators or directors if needed. They do not hold shares unless the contingency occurs.
Principal Office: Must be in the Philippines; a home address or virtual office suffices for freelancers.
Capital Stock: As noted, no minimum, but practical considerations (e.g., bank requirements) may suggest starting with at least PHP 5,000–10,000 paid-up capital.

Step-by-Step Procedure to Set Up an OPC

Setting up an OPC is streamlined through the SEC's online platform, the SEC Electronic Simplified Processing of Application for Registration of Company (eSPARC). The process typically takes 3–7 business days if all documents are in order.

Name Verification and Reservation:
- Access the SEC website (www.sec.gov.ph) and use the Company Name Verification System.
- Reserve a unique name ending with "OPC" for a fee (around PHP 100–200).
Prepare Documents:
- Draft the AOI using the SEC's template.
- Include a cover sheet, treasurer's affidavit (certifying paid-up capital), and written consent from nominees.
- If the stockholder is a foreigner, include proof of inward remittance for capital.
- Notarize the AOI if required (though eSPARC allows electronic submission).
Online Submission and Payment:
- Register on eSPARC and upload documents.
- Pay filing fees: Basic fee is PHP 2,000–5,000, depending on authorized capital (1/5 of 1% of authorized capital, minimum PHP 2,000), plus legal research fee (1% of filing fee) and other nominal charges.
- For example, with PHP 100,000 authorized capital, fees might total around PHP 3,000.
SEC Approval:
- Upon review, the SEC issues a digital Certificate of Incorporation.
- The OPC is officially registered and can commence operations.
Post-Incorporation Compliance:
- Bureau of Internal Revenue (BIR): Register for a Taxpayer Identification Number (TIN), obtain Certificate of Registration (COR), and secure authority to print receipts/invoices. OPCs are subject to corporate income tax (20–25% as of 2023 under the CREATE Act), value-added tax (VAT) if gross sales exceed PHP 3 million, and withholding taxes.
- Local Government Unit (LGU): Secure a business permit (Mayor's Permit) and pay local taxes.
- Social Security System (SSS), PhilHealth, and Pag-IBIG: Register as an employer if hiring staff; the stockholder-president must contribute as a self-employed member.
- Bank Account: Open a corporate bank account with proof of incorporation.
- Books of Accounts: Maintain general ledger, journal, and minutes book; audited financial statements required annually if assets exceed PHP 3 million or gross receipts exceed PHP 5 million.
- Annual Reports: Submit a General Information Sheet (GIS) and audited financial statements to the SEC within specified deadlines.

Advantages for Freelancers

An OPC offers several benefits tailored to freelancers:

Liability Protection: Shields personal savings, home, or other assets from business risks, such as client lawsuits or unpaid invoices.
Professional Image: Enhances credibility when dealing with clients, especially international ones, who may prefer corporations for contracts.
Tax Efficiency: Access to corporate deductions (e.g., home office expenses, equipment depreciation) and potential lower effective tax rates compared to progressive individual rates (up to 35%). Under the CREATE Act, small OPCs may qualify for reduced rates.
Scalability: Easier to raise capital, hire employees, or convert to a multi-stockholder corporation later.
Intellectual Property Management: The OPC can own copyrights, trademarks, or patents from freelance work.
Perpetuity and Transferability: Business continues beyond the freelancer's involvement, with shares transferable via nominee provisions.

Disadvantages and Challenges

Despite its appeal, an OPC has drawbacks:

Setup and Maintenance Costs: Initial fees (PHP 5,000–10,000) and annual compliance (accounting, audits, reports) can burden low-income freelancers.
Regulatory Burden: Stricter reporting requirements than sole proprietorships, including SEC filings and potential penalties for non-compliance (e.g., PHP 5,000–1,000,000 fines).
Tax Obligations: Corporate taxes and VAT registration thresholds may increase administrative work; freelancers must track income meticulously.
Limited for Professionals: Not suitable for licensed professions requiring professional corporations.
Nominee Dependency: Finding reliable nominees adds complexity, and disputes could arise.
Conversion Restrictions: An OPC cannot easily convert to a non-stock corporation and has limitations on public offerings.

Ongoing Obligations and Dissolution

Once operational, an OPC must:

Hold annual meetings (waivable if sole director).
File annual GIS within 30 days of anniversary and financial statements within 120 days of fiscal year-end.
Comply with anti-money laundering laws and data privacy regulations.
Amend AOI for changes (e.g., capital increase) via SEC approval.

Dissolution can occur voluntarily (by stockholder resolution) or involuntarily (e.g., for violations). Upon dissolution, assets are liquidated after settling debts, with remaining distributed to the stockholder or heirs.

An existing sole proprietorship can convert to an OPC by filing a conversion application with the SEC, transferring assets via a deed of assignment.

Conclusion

For freelancers in the Philippines seeking to mitigate risks and professionalize their ventures, establishing a One Person Corporation represents a forward-thinking strategy under the Revised Corporation Code. While it demands initial effort and ongoing diligence, the protections and opportunities it affords can significantly enhance long-term success. Freelancers should weigh their business scale, revenue, and goals before proceeding, ideally with guidance from legal and financial experts to navigate nuances and ensure compliance. As the gig economy grows, the OPC stands as a testament to the government's support for individual entrepreneurship.