Types of Business in the Philippines
Are you planning to enter into business and call yourself a businessman or entrepreneur? That sounds great! But what do you want to be… a proprietor, partner or stockholder? Do you want to offer a service or sale tangible products? Before you proceed, it is wise to consider first the different types and forms of business, firm or enterprise that you may undertake. You should carefully assess yourself, including your skills, financial resources and team, to select the best kind of business to start. To guide you, the following are the different types of business in the Philippines you may need to consider.
Different classifications of business
1. Service business – this provides intangible goods or services to customers. It usually generates profit by charging for labor or other services rendered to consumers, government or other companies. Below are examples of service businesses:
- Firms which offer professional services, such as accounting, legal, engineering, business consulting, customer service and architecture
- Transportation companies, such as airlines, shipping, land tours and forwarders
- Entertainment, such as artists and movie houses
- Hotels and restaurants
- Banks, lending companies and other financial institutions
- Telecommunication companies
- Event planners
- Medical and dental services
- Security and janitorial services
- Media, blogging and advertising
- Website developers
- Graphic designers
- Business process outsourcing (BPO) companies
- and others
2. Merchandising business – this purchase products from other businesses or manufacturers and sell them to customers. Merchandising companies usually have merchandising inventories in their current assets account. They usually generate profit by providing markup price on their goods available for sale. These businesses include retailers and trading companies such as the following:
- Grocery stores
- Department stores
- Real estate dealers
- Car dealers
3. Manufacturing business – this converts raw materials, labors and overhead into finished products that are available for sale to customers. Manufacturing firms includes the following companies:
- Car manufacturers
- Wine and soft drinks producers
- Electronic parts manufacturers
- Producers of drugs and other medical products
4. Other businesses. This includes businesses that can’t be classified as service, merchandising or manufacturers. Examples are agriculture and mining companies. These companies are engaged in producing or exploration of raw or natural materials, such as plants and minerals.
Types of business according to ownership structures
1. Proprietorship – is a business that is owned by a single individual who has full control and authority in running this kind of business. The owner, called proprietor, owns all the assets and is solely responsible for all the liabilities of the company. He or she enjoys all the profits but also suffers all losses of this business. The proprietor and his proprietorship business/businesses is considered as one taxpayer, sharing a single TIN (Taxpayer Identification Number) for tax purposes. A sole proprietorship must apply for a business trade name and be registered with the Department of Trade and Industry.
2. Partnership – is a business that is owned by two or more individuals or partners. Under the Civil Code of the Philippines, a partnership is considered as juridical person, having a separate legal personality from that of its owners (partners). Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. A partnership with more than three thousand pesos (P3,000.00) capital must register with Securities and Exchange Commission (SEC). Partnerships are generally treated like corporations for income tax computation purposes.
3. Corporation – is a business that is owned by its shareholders (natural or juridical persons). A corporation is composed of juridical persons established under the Corporation Code and regulated by the SEC with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited only to the amount of their share capital. It consists of at least five to 15 incorporators, each of whom must hold at least one share and must be registered with the SEC. Minimum paid up capital is P5,000. A corporation in the Philippines can either be stock or non-stock company regardless of nationality.
a. Stock Corporation – This is a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held.
b. Non-stock Corporation. This is a corporation organized principally for public purposes such as foundations, charitable, educational, cultural, or similar purposes and does not issue shares of stock to its members.
Organized under Foreign Laws
The following are types of business forms in the Philippines which are organized under Foreign Laws (source: Department of Industry)
1. Branch Office – is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the host country. It is required to put up a minimum paid up capital of US$200,000, which can be reduced to US$100,000 if activity involves advanced technology, or company employs at least 50 direct employees. Registration with the SEC is mandatory.
2. Representative Office – is a foreign corporation organized and existing under foreign laws. It does not derive income from the host country and is fully subsidized by its head office. It deals directly with clients of the parent company as it undertakes such activities as information dissemination, acts as a communication center, and promotes company products, as well as quality control of products for export. It is required to have an initial minimum inward remittance in the amount of US$30,000 to cover its operating expenses and must be registered with the SEC. Under Republic Act (RA) 8756, any multinational company may establish a Regional Headquarter (RHQ) or Regional Operating Head Quarter (ROHQ) as long as they are existing under laws other than the Philippines, with branches, affiliates, and subsidiaries in the Asia Pacific Region and other foreign markets.
3. Regional Headquarters (RHQs) – An RHQ undertakes activities that shall be limited to acting as supervisory, communication, and coordinating center for its subsidiaries, affiliates, and branches in the Asia-Pacific region. It acts as an administrative branch of a multinational company engaged in international trade. It does not derive income from sources within the Philippines and does not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines. Required capital is US$50,000 annually to cover operating expenses.
4. Regional Operating Headquarters (ROHQs) – An ROHQ performs the following qualifying services to its affiliates, subsidiaries, and branches in the Philippines.
- General administration and planning
- Business planning and coordination
- Sourcing/procurement of raw materials components Corporate finance advisory services
- Marketing control and sales promotion
- Training and personnel management
- Logistic services
- Research and development (R&D) services and product development
- Technical support and communications
- Business development
- Derives income in the Philippines
- Required capital: US$200,000 – one time remittance
So, have you already decided what type and form of business is the most suitable for you? The following related articles for starting and running different types of business in the Philippines will also guide you:
Advantages and disadvantages of forming a corporation
How to register business trade name with the Department of Industry (DTI)
How to register business with the Securities and Exchange Commission (Stock Corporation)
How to register business with the Securities and Exchange Commission (Non-Stock Corporation)
How to register business with the Bureau of Internal Revenue
How to register with the Bureau of Internal Revenue (for professionals)
How to compute income tax for corporations and partnerships
How to compute income tax for sole proprietorships