Business Tips Philippines: Business Owners and Entrepreneurs’ Guide

Business Tips Philippines, an online entrepreneurship, management & marketing guide for Filipinos, business owners, leaders & entrepreneurs around the world.

Closing a Sole Proprietorship Business in the Philippines

A single or sole proprietorship is a type of business based on ownership that is owned by a single person who has full control and authority on his or her business. The owner is called proprietor or proprietress and he or she owns all the assets and equity of the business. The proprietor is solely responsible for all the liabilities and obligations of the company. All profits of the proprietorship business are enjoyed by the proprietor, but he or she also absorbs all the company’s losses.

In tax and legal sense, the proprietor and his business is considered as one entity and is also considered as one taxpayer, unlike a corporation, partnership or cooperative which are considered a separate legal entity and a separate taxpayer from their owners. The proprietorship business and its owner proprietor share the same TIN (Taxpayer Identification Number). On the other hand, corporations, partnerships, and cooperatives use a separate TIN from their owners.

A proprietorship business might be ceased for many reasons. It could be voluntary or involuntary. Voluntary closure of a business happens when the owner decides to close the business on his or her will due to reasons, like ceasing the business to avoid incurring more losses when the business is not financially performing well or cancelling the proprietorship business due to transformation to partnership or corporation. In a voluntary closure, the business owner usually complies with the government requirements on business cessation or cancellation of registration.

On the other hand, involuntary closure of a business usually happens when the government or a court has ordered to cancel the business registration of a business due to non-compliance with the regulations. Other reasons could the death of the owner or the incapacity of the owner to do business, like for example, when the owner or the business becomes bankrupt.

In this article, we assume that the proprietor is closing his or her business voluntarily.

So how do we close a sole proprietorship business in the Philippines? The rule of the thumb for closing a business is to formally or compliantly close the business in the government agencies or offices where it was registered.

A sole proprietorship business is usually required to register with the following offices:

– Local Barangay Office – for barangay clearance.
– Department of Trade and Industry (DTI) – for business trade name registration.
– City or Municipal Office – for its Mayor’s license or permit to operate.
– Bureau of Internal Revenue (BIR) – for getting official receipts (invoices) and filing tax returns.
– Social Security System (SSS) – for complying with the Social Security (SS) Law.
– Philippine Health Insurance Corporation or PHIC (Philhealth) – for complying with the National Health Insurance Act (RA 7875 / RA 9241).
– Home Development Mutual Fund or HDMF (Pag-IBIG Fund) – for complying with the RA 7742.
– Department of Labor and Employment (DOLE) – for employers with 5 or more employees.
– Other offices that a sole proprietorship business is required to register to get special license to operate, such as the Bangko Sentral ng Pilipinas (BSP) for pawnshops and money changer businesses.

Unlike corporations and partnerships, proprietorship businesses don’t need to be closed with the SEC office since they are not registered with the commission in the first place. Thus, we can basically say that proprietorship businesses are easier to close than dissolving partnerships and corporations.

To voluntarily close or cancel the registration of your proprietorship business, you can start by getting a clearance from the Barangay Office, where your business is located. Then you can voluntarily cancel your business name registration with the DTI and with the other offices, where your business is registered.

Among the government offices to comply, the BIR is probably the most difficult, especially if you have delinquent taxes or unpaid tax obligations that must be settled with the Bureau.  Before the BIR issues clearance, the bureau conducts an audit to the business to assess and ensure that such business has paid all its internal revenue taxes and other fees due to the government.

The business should also be cleared with its obligations with other offices. For example, the City Office has to ensure that the business has paid all its local business taxes or licensing fees due to the city. The SSS, Philhealth or Pag-ibig also have to make sure that you have fulfilled your obligation as an employer who is mandated to remit benefits or contributions for your employees.

To check the list of requirements for business closure with the different government offices, please read our post on “how to close a business in the Philippines“.

Comments

  2. Sir Vic, how about for the involuntary closure of business due to bankruptcy and non-operation for at least 5 years? Will, it be considered that the business registration with BIR is automatically closed? thank you.

  3. Hi

    What are the procedure or steps in changing sole proprietor into a Corporation.

    Thanks

    regards,

    Lito

  4. Hi, we have registered a business name at DTI Feb last year, then we got barangay and mayors permit same year. It just a very small business but wasn’t pushed through and now planning to do business again. Since we haven’t registered with the BIR yet, can we just register a new name or still have to file closure at bgy and DTI. many thanks.

  5. Sir, what are the procedures needed to be done regarding on change of ownership in a sole proprietorship, my dad would want me to register it next year under my name, kindly guide me on this sir, .. thanks sir in advance

  6. Sir, I need help. I have a computer cafe which has been running for 4 months now. I rent a space which costs P16,000/month. So my question is… I cannot generate enough funds to pay for the rent, electric bill, water bill, and internet service. I am planning to relocate my business to another town. I have been searching the internet for steps on how to do so but couldn’t get any luck. What i would like to know is.. Do i need to go to my RDO or the local DTI office for this matter? if yes, which one do i go to first? thanks sir!

  7. Hi. I would like to consult about the concern of the gym business of my Uncle. He is an OFW and owns the building and owns a gym which is located in the building. He decided to change the operation of the building and renovated it to become a dormitory (which is still in operation right now). Basically, the gym business stopped operating for about 3 years now and he was seeking a tax clearance with the BIR and was assessed of about P20,000. The BIR said that they cannot assume that the business was closed three years ago since they were not able to notify them. I assume the P20k was just an estimate or compromise of BIR for him to obtain tax clearance.

    My question is, can he still prove to the BIR that the gym was closed three years ago ( I was thinking that maybe he could present some receipts or construction contracts evidencing that the gym was dismantled), and if yes, how much is the minimum amount he is required to pay? Honestly, I don’t know any other details aside from what I said above pertaining to his business. He just asked me if it is possible to not pay the BIR at all since he was not able to generate economic benefits from the gym. Thanks much!

  8. If I want to change ownership of a single proprietorship, Do I still have to cancel all documents from the original owner? What am I suppose to do? Please reply.

  9. Hello sir!question po..i have a business (sole) exactly the same sa business ng auntie ko.binili ko na po yung business niya.pano ko po ba idadagdag sa existing business ko yun?may nagsabi po kasi na ganun na dapat gawin.balak ko po sana ituloy nalang under pa din sa business name ng tita ko.ano po ba dapat gawin or pano po ba gagawin para maisama dun sa existing business?

  10. Ano mangyayari kung hindi ko aayusin yung pagsasara ng karenderia kasi lugi na ako ang dami ko pang babayaran sa BIR at City hall samantalang maliit na karinderia lng nman binuksan ko

  11. good afternoon po! hihingi po sana ako ng payo. Ako po ksi ay ginawang “dummy” para sa permit ng canteen operations sa organisasyong aking pinagtrabahuan. sa ngaun po ay wala na ko dun napilitan akong magresign coz of some issues. I manage the canteen & grocery sa isang factory for 3yrs. But ang may permit lng po ay ang canteen. Natatakot po ako, kc until now ay ung name ko ang gamit nla sa permit as a sole proprietress & they are not paying tax. Baka po kc mgkaproblema for sure po ay ako ang hahabulin ng gov’t. Nabasa ko din po dito na ang pagsasara ng business voluntarily ay dadaan p dn sa ibat ibang paraan at maaaring madiskubre ang hindi nla pagbabayad ng tax..ano po ang best na gawin ko and where can I ask help to fixed this matter. Hope you can help me… many thanks po & more power!

    • parehas tayo ng sitwasyon na naging dummy para sa mga permits, ayun ako ang nagdusa sa pagbabayad para malinis ang aking pangalan. ako nagbayad ng mga multa para sa business permit at open cases sa bir.makikita talaga sa system ng bir yung mga open cases mo lalo na yung mga quarterly at annual tax filling pati registration fee.almost 100k ang ginastos ko para lang maayos ang problema ko lalo na sa BIR. ngayon malapit ko na maayos at magkakaroon ng peace of mind.

  12. Hi! My mom who was the sole owner of a small rental property adjacent to her residence has died and I inherited the lot the rental property is on. Although we continued to pay for the taxes, we found out just recently that she never got the necessary permits/licenses needed to start this small business. As the new owner of the property, what would be the best advice you can give me. Thanks.

  13. Hi Mr. Vic, my husband (who was my boyfriend then) and I planned to open a small business somwtime 2006 using my parent’s residence. Someone from the CityHall initiated processing and I just gave him a fee for it. We even had our receipts printed. Unfortunately when we were sourcing for clients the competition was tough and the industry of semicon underwent crisis. We did not push through with it and i did not get hold of the Mayor’s permit as I never planned to continue it. Do I have to close it at BIR when we never issued the receipts and gained nothing out of it? We moved from one house to the other and the receipts are nowhere to be found.
    Should I pay penalty for this?

      • Same problem, receipts and other documents needed to close business are nowhere to found. Is there a penalty for this?

        • Hello Len. When you register with the BIR, you have to file the BIR returns that are applicable to you, as stated in your certificate of registration. Even if you don’t have payable amounts, you still have to file the returns to the BIR. If you have not done this since 2006, then the BIR may impose compromise penalties for non-filing of returns. It’s up to you if you want to close the business, but as long as it is not yet closed, the BIR will still require you to file the usual BIR returns. To close the business is also to get clearance from the BIR.

          Now, when it comes to the lost receipts. The basic process is to obtain an affidavit of loss, assuming that the items are already impossible to retrieve and you have already exerted your best effort to recover them. At the end of the day, it’s still up to the BIR to assess how much is the penalty that they will impose to you or your business.

  14. Good day. Need advice. My brother opened a sole proprietor business in divisoria 3 years ago. Mga 1 million sales lang siya per year. Then last year September, pinasara ng BIR yun store niya at humihingi ng 38M. Nakipagusap kapatid ko sa tax lawyer at from 38M, naging 5M. Wala po siyang pambayad. Pag di daw nakabayad, makakasuhan siya. Pwede po ba siya mag file ng bankruptcy?

  15. Hi! Is change of ownership in a Sole Proprietor business possible? The business is in the name of my friend but she’s busy with her work and family and doesnt have the time for the business. She wanted to transfer the ownership to me. Cancellation or closure of business is not possible because we need the same company name. We have several accreditations already. Please help. Thank you.

  16. Sir good day to you!can i ask a question my father has a business an internet cafe,but he passed away. How could i change the business name of my father to my name? Thanks

    .

  17. Me and my partner was applying to be an operator for lazada. Lazada employee who interviewed us and our drivers told us to complete their required/written requirements. So we registered to (barangay,sss,municipal buss permit and b.i.r we even had to pay for the printing of the receipt that was going to be use in the business). And she said we have to get back to them in 4 days oct26 so after 3 days i called the lazada representative to ask if we could have an extension because were still looking for motorcycles rhat was going to be used by our riders and will be collateral to them (the legal papers of the motorcycles) she said we should go to their office oct. 27. Then oct 27 2016 she called and said that there is no more hiring fir operators that she will try to get a slot for us on December we just have to wait. So december came she said atill no slot but their HR called obe of oyr riders trying to employ him sadly that said rider was loyal to us and told us what he and lazada talked about. So I called lazada again still nothing HR must have mixed up the applicants she said. Now January i ask again if theres any chance we can have a slot because were going to have to renew and pay for the registration not to mention sss payment for our employees. She told us no slots and in fact they are in the process of canceling other operators/sub-con. In other words all our money spent time and effort was for nothing.. what do i have to do to cancel all my registration? Thanks for the time and sorry my massage is too long.

  18. Good Day Sir Lito!

    May i ask what are the procedure or steps in converting sole proprietorship into a Corporation. Cancellation or closure of business is not possible because we need the same company name. I consulted a lawyer but it seemed too complicated than what would want to believe in.

    Thanks

    regards,

    Santos

  19. Good day,
    May I ask the procedures on how to transfer ownership of sole proprietorship (Salon). Likewise, i would like to ask what will be the recommended day of transfer, “Is it at the end of december (December 31, 2017) or first day of the month on the other year (January 1, 2018)

    • Hi, since it is a sole proprietorship you are transferring, the existing business should be closed and terminated, then the new one shall be registered. I think when it comes to taxability, you should instead consider when will the existing business will be terminated, and when will the new business will be registered. Also, the termination and registration can be unpredictable since it may take time for the BIR to process the closure of the existing business and register the new business.

      What will actually happen is that since registration is way faster than closure (since closure has a lot of requirements), the new business will be registered before the closure of the old business will be certified/cleared by the BIR. In that case, a better question might be when will the new business should be registered? In that question, January 1 is a better date to register.

  20. Hi Sir Vic,

    A friend’s brother just passed and they are having problems with how to proceed with their brother’s business.

    Is it ok to continue business operations without transferring the ownership to a different person
    and wiithout updating government office records?

    Or is it ok that only the Mayor’s permit is updated as to new business owner while BIR records are unupdated? What can be the possible problems for this?

  21. hi, sole proprietor ako here in cebu and for closing na ng bness bec. non profitable then balik manila na ako.. how many days ba itatagal ng closing sa bir? kasi no funds na ako at need ko ng bumalik sa manila… cant afford rental here in cebu na… pwede ba na i close ko ito sa manila rdo or accept penalty.. how much kaya maging penalty ko? cant afford rental and utilities bill in cebu plus flight cebu-manila in case tatawagin ako sa bir about my filing… which more easier and low cost ? desperately need help

    • Hello Kathy, you have to file business closure in the RDO where your business is registered. When it comes to the cost of the penalty, it will still depend on the outcome of the assessment that the BIR will conduct in your business. They will assess your business whether you have already paid all the necessary taxes before they will issue a tax clearance.

  22. Hello Sir Vic, Kindly give me an advise about my situation. I was registered in the DTI and BIR September 2017, for my plan business as sole proprietor for small time contractor. I registered this because these are one of the requirements to participate in pre-bidding. But unfurtunately I was not awarded for any contract since from start. So I now plan to retire this business since I getting old at 65 yrs old and I lost hope to be awarded with contract. The printed receipt are intact. Please give your advise what are the best thing to do for this situation. Thank you in advance.

  23. hi i need help. my internet cafe was closed for almost 7 years now and my ex husband operated it. but the cafe was named after me. out of my consciousness, he didn’t filed closure to bir when the business went bankrupt. Now, I’m having a hard time to fix this. what should i do? are there fees i have to pay to bir if i file a closure? and all documents and other receipts which i believe needs to be surrendered has vanished as well. no registration documents whatsoever. pls. help….

    • Hello Josephine.
      It really becomes a problem when businesses forgot to close the business with BIR properly. If a business is not closed, even without operation or income and although no taxes payable, such business should still file the necessary returns (monthly, quarterly, annually) to the BIR. There will be a compromise penalty for non-filing of returns.

      What businesses do when they have not yet closed their business, is just to file the necessary returns to the BIR (although no payment) until they have formally closed or cleared from the BIR.

      You may visit the BIR to learn how you can get tax clearance so that your business will be closed for good.

  24. Hello Sir Vic..

    A sole proprietorship is in the process of incorporation. The sole sole proprietorship is a service-oriented business. Is there VAT liability under the “deemed sale” transactions? What assets are subject to VAT considering that the business has no goods or inventories, only properties and equipment used in providing the service?

  25. Hi Sir Vic! I just want to ask, does the fee for retirement of business permit in the City Hall really goes up to 10k+, when the main reason why I have to close my business is bankruptcy?