The One Person Corporation (OPC) is one of the most significant provisions included in the Revised Corporation Code. For those who are considering opening their own business, choosing the appropriate business structure is one of the most crucial and complicated decisions to consider. Why does this play a significant factor? Accounting firms that offer expert business registration services say that what you choose will define the limits within which your company must operate and the regulations you must comply with.
The Philippines has three known business structures: sole proprietorship, partnership, and traditional corporation with several incorporators. A sole proprietorship means the business has one owner who pays personal income tax on profits earned from the business. With the launching of the OPC, this begs the question—would it be better to establish an OPC or a sole proprietorship? If you are tethering on the decision of whether to register your business as a sole proprietorship or an OPC, here are the 4 most important points for consideration.
1. The Process of Registration of Business
It is relatively inexpensive and straightforward to register your business as a sole proprietorship. All a sole proprietor must do is to register a business name with the DTI, acquire a Barangay Certificate of Business Registration, obtain the Mayor’s Permit, and secure a Certificate of Registration from the BIR.
The OPC may precede the filing of corporate bylaws, but it is still a requirement to submit its articles of incorporation. The OPC must live in the Philippines and be of legal age. He or she will be the sole director and president. Licensed professionals; financial institutions; Pre- need, trust, and insurance companies; public and publicly listed companies; (GOCCs) are not allowed to form an OPC unless provided under the law. When the necessary requirements and documents are prepared, they can be submitted manually to the SEC office. If this is cumbersome for you, you can hire experts that offer business registration services.
2. The Concept of Liability
The OPC is an autonomous or juridical entity from the owner and consequently which means the liability of the OPC is not the liability of the owner. The OPC would only be considered liable only up to the sum they owe to the organization. This is a major perk if you want to protect your personal assets and keep your business ones separate.
In a sole proprietorship, however, the creditors can go after the personal assets of the sole proprietor. This means that if your business defaults on its obligations, your creditors can go after your house, savings, and other personal assets like jewelry or automobiles. Although setting up a sole proprietorship is easy, it comes with risks so assess if this is something you’re willing to take.
3. How Everything is Taxed
While One Person Corporation is subject to the corporate tax rate of 30% of net income, a sole proprietor can contend a tax rate of 8% of its total sales less Php 250,000.00 if it does not surpass three million pesos. If it does surpass three million pesos, then one must follow the tax rate based on the RCC.
It would be prudent to seek advice from an accounting firm as a CPA can help you evaluate which business structure is the most beneficial for you. After all, you’re engaged in business to earn an income, so it would be best to pursue the path which allows you to keep the most profits.
4. Varying Requirements For Set Up
Designating a President, Treasurer, and Corporate Secretary is instructed under the Corporation Code of the Philippines for an OPC. The sole shareholder is the President by default, but they are prohibited to become the Corporate Secretary. Under the SEC, OPCs are required to submit annual reports like audited financial statements and all associated transactions between the OPC and the sole stockholder must be revealed. None of these previously mentioned requirements are enforced on the sole proprietorship, making this an easier business to establish and run.
Based on the points provided, whether you prefer an OPC or a sole proprietorship, considering the nature of the business is also critical to its success. The decision will ultimately rest on the goals you have for your business, and what you’d believe to benefit it best.
There is no “better” business structure, there is only the “better” option for you based on your circumstances and goals. That said, if you are in need of assistance in making this decision, feel free to seek the aid of accounting and finance persons to help you make good choices. Call our accounting firm today for business registration services and we can get your business up and running in no time. We offer free 30-minute consultations.