By Elaine Rombaoa
"Planning, Organizing and Registration of a business in the Philippines"
Discover Philippines, September - October 2004

Business Plan

Any decision to invest or to engage in commerce in the Philippines must be preceded by a Business Plan. Tremendous opportunities exist in a country with an 80 million market, 50% of which are ages 19 years old and below. Considering the country's present state, there is plenty of room for innovative products, technologies and infrastructures.

The Plan contains an investor's strategy for success and ultimately assists in assessing the chances of success. The Plan likewise would help avoid the pitfalls and reduce the cost of doing business especially in unfamiliar terrain. The essential components of the plan are as follows:

a) Marketing Plan- conduct a market study, research and analysis of the market (export or domestic) in relation to the product, technology or service of your proposed business. Knowing the market helps create the long-term strategy that drives an investment decision, current and future actions. Know the customers and understand competition. Develop the business strategy.

b) Viability Study- economies of different countries are now interwoven because of free trade and globalization. Many products or services generated in the Philippines are subject to the vagaries of import liberalization. Identify the competitive advantage of establishing the business in the Philippines . Form an opinion on whether the business is viable considering local competition, macro-micro economic and industry conditions.

c) Financial Plan- this calculates the initial project cost or cost of investment. It includes the working capital requirements until the business has established the normal turn-around cycle. Underestimating the project costs may result to disruptions in the implementation. Determine sources of financing. Institute steps to minimize initial cost of investments. Perform risk assessments and analysis.

d) Legal Due Diligence - determine all the legal requirements for the operation of the business. If there are government agencies regulating the business activity, then an opinion should be formed as to whether these requirements can be hurdled. Input the legal costs of compliance, licensing, etc. into the project timetable and financial plan.

Forms of Business Organizations

An investor may organize alternative forms of business, which are: a) Single Proprietorship (one party); Partnership (at least two parties); and Corporations (at least 5 parties). There are many pros and cons to each business form.

A single proprietorship is simple to set up and the start-up costs relatively small. Decision-making is left entirely to the owner and its growth is limited by owner's financial resources. In the Philippines , majority of business enterprises are single proprietorships.

Partnerships may either be limited or general. In limited partnerships, there is one or more limited partners, whose civil liability is limited to the extent of his or her investments in the business. General partnership consists of all general partners, who may be liable beyond their capital investments in the partnerships. Partnerships are popular in professional services such as lawyers, accountants, underwriters, engineers, etc.

Corporations have juridical personalities apart from their stockholders. As such, stockholders are liable only to the extent of their capital contribution to the corporation. Only the corporate assets are liable to satisfy debts arising from business transactions. However, officers and directors of the corporations may be held criminally liable if the company is involved in the commission of criminal or penal acts.

Registration with the Department of Trade and Industry

Single proprietorships are registered with the Department of Trade and Industry (DTI), Makati City or its provincial offices. Only the owner of the business is authorized to sign all forms. Processing time - 1 to 2 days.

Registration with the Securities and Exchange Commission

In order to have legal personality, partnerships and corporations should register with the Securities and Exchange Commission (SEC). Only partnerships and corporations are required to register with the SEC, single proprietorships need not register. The procedures are as follows:

1) The proposed business name must be verified and approved by the Verification Unit of SEC.

2) Obtain legal forms from SEC and submit the following documents:

For Corporations

a) Articles of Incorporation;

b) Verification Slip (corporate name);

c) Treasurer's Affidavit;

d) Bank Certificate (to support paid up capital);

e) Authority to verify bank account;

f) Statement of assets and liabilities;

g) Written undertaking to change corporate name; and

h) Other documents.

For Partnerships

a) Articles of Partnership;

b) Verification Slip (business name);

c) Written undertaking to change partnership name;

d) Registration data for partnership; and

e) Other documents.

3) Pay registration, filing and miscellaneous fees. If all required documents are complete, the SEC Corporate and Legal Department will issue the Certificate of Registration after 3 to 5 days.

With regards to corporations, what were discussed herein are the registration requirements of Primary License. If the corporation intends to raise capital or borrows money by issuing securities to a large number of people or to the general public, then compliance with the Securities Act is needed. In such a case, the corporation must secure a Secondary License from SEC.

Registration with the Bureau of Internal Revenue

After registering the single proprietorship with the DTI or partnership/corporation with the SEC, it is required that all businesses be registered with the Bureau of Internal Revenue (BIR). The BIR process, once accomplished will result to:

a) Issuance of Tax Identification Number (TIN) for the business;

b) Issuance of Registration Certificate by the BIR (VAT or Non-VAT);

c) Books of Accounts of the company (Ledger and Journal) are stamped by the BIR, ready for recording of business transactions;

d) Payment of documentary stamp tax on subscribed capital stock of corporation;

e) Issuance by the BIR of Authority to Print receipt, invoices and other accounting forms. The company brings this Authority to the printing company for printing of receipts, sales or service invoice.

Registration period with the BIR lasts from 2 to 5 days after submission of complete requirements.

Obtaining Licenses and Permits from Local Government

A business will have to locate its office or factory in a city or municipality. The Mayor's Office of each city or municipality has a Business Permit and Licensing Section, which issues licenses and permits. All businesses are required to secure a license or permit before operating.

In the initial year of operations, licenses and permits are based on the capitalization, while on the succeeding years, prior year's sales or revenues is used as a basis. Processing takes 3 to 7 working days.

Registration with the Social Security System and PhilHealth

The business is also required to register with the Social Security System (SSS). An employer's identification number and certificate of registration will then be issued. Employees are likewise required to be registered and it is the duty of the Employer to report from time to time to the SSS names of employees as they are hired.

Philhealth covers the medical insurance of all employees. Employers must register and report all employees for coverage. This process can be accomplished in 2 to 3 days.

Registration with Pag-Ibig or Home Development Mutual Fund

Under Republic Act No. 7742, all SSS members earning P 4,000 and above monthly are required to be covered by the Pag-Ibig Fund. The Fund is used to finance the purchase of lot and construction of a residential unit or home improvement and renovation. Both the employers and employee are required to contribute to the fund. Registration with the Pag-Ibig takes 2 to 3 days.

Registration with the Department of Labor and Employment

Business establishments with five or more employees are encouraged to register with the Department of Labor and Employment (DOLE) for purposes of monitoring the firm's compliance with labor rules and regulations. Registration is mandatory for bigger firms of 50 or more workers. This process takes around 2 to 3 days.

Other Agencies

As a recap, after a business has registered with the DTI/SEC, Local Governments, BIR, SSS, PhilHealth, Pag-Ibig and Department of Labor, it is ready to operate in full compliance with the law. However, if it intends to operate a particular business activity regulated by a specialized government agency, then further procedures or permits or licenses must be complied with.