How to Close a Business in the Philippines

Starting, formalizing, legalizing, and registering a business in the Philippines could take time depending on the type of your company. But if the process of business registration takes time, business closure or cessation is even more difficult and could take longer time to actually accomplish, depending on the status of the business.

There are many reasons why a certain business will come to its end. It could be that the business is already causing the owner significant losses and decided to just stop the business or it could be that the business needs to be terminated in order to transform into a new type of business. Not all business closure brings negative news. For example, a single proprietorship business that is transforming into a corporation is required to be closed as a proprietorship. Thus, business closure could also mean expansion.

The process of business closure in the Philippines depends on the type of the company to be ceased. For corporations and partnerships, they should be formally close in the Securities and Exchange Commission (SEC) where they are also registered, unlike sole proprietorship businesses that are not. There are also businesses that should comply with the closure requirements of other government agencies, where they are specially regulated. For example, pawnshops are also required to be closed in Bangko Sentral ng Pilipinas (BSP), where they are also governed or regulated.

Businesses can also be closed voluntarily or involuntarily. Voluntary closure generally means the business owner close the business in his or her own will, usually complying with applicable business regulations. On the other hand, involuntary closure means the business is closed due to events, such as failure to comply with the law or regulations and the government or court has ordered to close the business. In this article, we assume that the business owner is voluntarily closing the business.

Usually a business should be closed in the following government agencies/offices.

• Department of Trade and Industry (DTI) office
• The local City/Municipal Office, where the business is registered
• Department of Labor and Employment (DOLE) office, if the company has employees
• Bureau of Internal Revenue (BIR) office
• Bangko Sentral ng Pilipinas (BSP), if the business is registered with the office
• Securities and Exchange Commission (SEC) for partnership and corporation
• Other agencies or offices where the business is registered, such as SSS, PHIC and HDMF

To guide you on the formal cessation of your business, here are some of the basic steps, procedures and requirements on how to close a business in the Philippines.

 

Closing a business at DTI

According to the DTI, we still have to inform the office when we voluntarily close our business, and apply for cancellation of our registered business name (BN).

For Sole Proprietor, the following are the requirement for Voluntary Cancellation.

• Letter request signed by the owner
• Affidavit of cancellation of the registered BN, stating the reason/s for the cancellation and that the registered owner has no outstanding financial obligation at the time of closure of establishment
• Original copy of the BN certificate and the duplicate copy of the application form (affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)

For Corporation and Partners, the following are the requirements for Voluntary Cancellation.

If dissolved at the Securities and Exchange Commission (SEC),

• Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
• Certified photocopy of the SEC certificates of dissolution of the corporation/partnership
• Original copy of the business name certificate of registration and the duplicate copy of the application form. (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)

If BN Registration Only,

a. Corporate Name:
• Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
• Board resolution/partnership agreement for the cancellation of the registered business name stating that the Corporation/Partnership is retiring from business; surrendering the business name certificate for cancellation and that at the time of closure of establishment the business has no outstanding financial obligation, or a certified copy of the Certificate of Dissolution (if applicable)
• Original copy of the business name certificate and the duplicate copy of the application form (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)

b. Adopted Name:
• Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
• Board Resolution/Partnership agreement for the cancellation of the registered business name, stating the reason/s for the cancellation that the corporation/partnership has no outstanding financial obligation at the time of closure in connection with the operation of the said business and if there were creditors copy of notice to them
• Original copy of the business name certificate and the duplicate copy of the application form (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)

 

Closing a business at the local City/Municipal Office

The procedures and requirements on closing a business may vary among different LGUs (Local Government Units). This means that the requirements for business cessation in Makati City can be different in Manila or Pasay City. The typical requirements for business closure at the LGUs are the following:

• Affidavit of Gross (reason for and date of closure)
• Mayor’s Permit
• Business Plate
• Financial Statement/ ITR
• Sketch
• Latest Payment
• Certificate of Closure from the Barangay Captain indicating date of closure

For more complete and accurate procedures and requirements, you may visit and inquire the City or Municipal Office where your business is registered.

 

Closing a business at DOLE

If your business has employees or was required to be registered with the DOLE, you also have to ensure that you notify the DOLE office and comply with the labor requirements to avoid labor relation liabilities. The following are the basic requirements in closing a business and be cleared at the DOLE office:

• Service of a written notice to the employees and the DOLE at least one (1) month before the intended date of closure/cessation
• The closure or cessation of business operations is bona fide in character.
• Payment to the employees of termination pay amounting to at least one-half (1/2) month pay for every year of service, or one (1) month pay whichever is higher, per Philippine Labor Code mandate.

 

Closing a business at the BIR

The process of business cessation at the BIR is perhaps the most tedious one among others. And if you have unpaid tax liabilities or delinquencies due to the government, the process could even get more problematic. Among the government offices, where your business is registered, the BIR is the one which records and monitors your internal revenue taxes, such as income and business taxes (Value Added Tax or Percentage Tax). And to formally close and clear your business with the BIR, the bureau has to ensure that you have already paid all your tax obligations.

BIR Form 1905 (Application for Registration Information Update) is the tax form used in applying for closure of a business. The following are the requirements and procedures for closure of business at the BIR.

Documentary Requirements
1) Letter of request stating reason for termination of business
2) Original Certificate of Registration
3) Books of Accounts
4) Inventory List of Unused Receipts and Invoices
5) Unused Receipts and Invoices for cancellation
6) Board Resolution / Notice of Dissolution (if Corporation / Partnership)

Additional Requirements in Case of Death of Individual Taxpayer:
1) Death Certificate
2) Payment of Estate Tax, if any

Procedures
1) Taxpayer applicant files BIR Form 1905, together with the attachments at the RDO where they are registered within ten (10) days from retirement of business.
2) Taxpayer files short period return for income tax purposes.
3) RDO verifies if taxpayer has open cases reflected in the Integrated Tax System (ITS). If YES, ask taxpayer to submit required returns and pay the corresponding tax due/s and penalties if any.
4) RDO verifies if taxpayer has delinquent cases at the Assessment, Collection, and Legal Divisions of the Region;
5) RDO verifies if taxpayer has delinquent cases at the Collection Enforcement Division, BIR National Office
6) RDO requests for Letter of Authority to investigate internal revenue taxes for all un-audited taxable years prior to cancellation of business.
7) Assigned Case officer conducts investigations for period/s covered in the issued Letter of Authority.
8) Taxpayer complies with requirements of audit and pays corresponding deficiency taxes resulting from audit using Form 0605.
9) RDO issues tax clearance for closure of business.
10) RDO updates ITS and cancels TIN of taxpayer (for non-individual taxpayer).

 

Closing a business at SEC

For corporations and partnerships, they cannot process closure of business with the SEC if they are not yet done in securing tax clearance from the BIR and endorsements or certificate of registration cancellation from other government offices, if applicable. Thus, even though the business is already non-operating, it still remains as a registered business. Though, the business owners, partners, or shareholders can already start the liquidation process of its assets, subject to applicable taxes.

For corporations, corporate dissolution can be voluntary or involuntary. In this discussion, we assume that we are voluntarily dissolving a corporation. Moreover, voluntary dissolution of a corporation may have different procedures, depending on whether the dissolution will affect creditors or not. One way to voluntarily dissolve a corporation with the SEC is by shortening its corporate term. The following are the requirements for corporate dissolution by shortening its term.

1. Directors’ Certificate – A Notarized document signed by majority of the directors and corporate secretary certifying the amendment of the articles of incorporation shortening the corporate term, the votes of the directors and stockholders thereto, and the date and place of the stockholders meeting
2. Amended Articles of Incorporation
3. Audited financial statements as of date of the stockholders meeting approving dissolution or any date thereafter
4. List of creditors, if any, and their consent, or certification as to non- existence of creditors
5. BIR Tax Clearance
6. Publisher’s affidavit of the publication of the dissolution of the corporation (once a week for three (3) consecutive weeks)
7. Endorsements/clearances from other government agencies, if applicable

Take note that if there are creditors and their consent was not secured, the application should be in the form of a petition to be filed with Office of General Counsel of the SEC.

 

Other notes to remember

When closing a business in the Philippines, we have to formally close the business in the government agencies where it is registered. We have to notify those offices and comply with their requirements to get a clearance or certificate of termination (cancellation of registration) of our business. Thus, a business owner has to ensure that his or her business is cleared in every government agency it is registered aside from the ones discussed above.

For businesses registered and regulated by the Bangko Sentral ng Pilipinas (BSP), such as pawnshops, money changers, banks, and financing companies, they have to comply with the closure requirements of the office. For cooperatives, instead of closure at the SEC, it should comply with the CDA (Cooperative Development Authority) Office for cessation or dissolution.

Furthermore, if your business employs people and is contributing to SSS (Social Security System), PHIC (Philippine Health Insurance Corporation) and HDMF (Home Development Mutual Fund) for employees as mandated by our laws, then you also have to apply for cancellation of your business or employer’s registration when you close your business to stop your obligation as a contributing employer.

Reference:
Department of Trade and Industry, Security and Exchange Commission, Bureau of Internal Revenue, Philhealth, Social Security System, Department of Labor and Employment, Department of Interior and Local Government, Bangko Sentral ng Pilipinas

 

Disclaimer: This article was written and published for informational use only. There may be other important information that we might have missed to discuss in relation to the topic discussed above. Furthermore, new and subsequent rulings, issuances, laws, and mandates related to the topic that will occur in the future may render the whole or part of the article obsolete or inaccurate. Moreover, the content in this article is not provided to serve as legal, tax, or investment advice. Hence, we do not guarantee and is not liable for the accuracy or completeness of any information provided herein or in any outcome as a result for using this information.

Victorino Abrugar is a retired CPA practitioner, a blogger, speaker, and an entrepreneur. He's the CEO of Optixor, Inc., a digital marketing company based in the Philippines. Follow him on Twitter at @viclogic.