LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct. Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

Company Formation in Philippine |

Overview of Philippine Company Formation

In comparison to the other ASEAN nations, the Philippines is expected to have a quickly expanding economy in 2022. The Philippines has made a lot of legislative and regulatory changes to make the business environment more conducive. Local and foreign business owners have been drawn to the Philippines by these regulatory improvements and the efforts of the Philippine government. Without actually being there, a person can establish a firm in the Philippines. As a result, businesses can be established virtually with the bare minimum.

Overview

There are three main geographical divisions in this nation: Luzon, Visayas, and Mindanao. Manila is regarded as the country's principal commercial centre. In the Philippines, registering a business is rather simple, and various corporate structures can be used.

With a current GDP growth rate of 6.6%, the nation is exhibiting progressive expansion in terms of GDP. Statistics demonstrate that the GDP growth rate is now increasing. For foreign business owners, the Philippine government offers a variety of investment options. An investor would therefore wish to register a company in the Philippines.

In the Philippines, there are various types of credit rating organizations that have a significant impact on the financial industry and the growth of the economy.

Philippine Regulatory Authority/Body for Company Registration

The Securities and Exchanges Commission is the main regulatory body in charge of overseeing company registration in the Philippines (SEC).

Business structure types in Philippines - Philippines Company Registration

In the Philippines, business establishment is permitted for both domestic and foreign entrepreneurs. In the Philippines, there are basically three types of business vehicles. These include companies, partnerships, and single proprietorships (both domestic and foreign).
Sole Proprietorship- A sole proprietorship is a business run by a single natural person, and the owner has unlimited responsibility. The business is also independent of its owner and does not exist as a separate legal entity.

Partnership- By signing a contract, two or more people can form a business partnership. Here, two or more partners agree to contribute funds, assets, and labour to the partnership structure with the goal of engaging in business endeavors to make profits that will be divided amongst themselves. A partnership is regarded as having its own distinct legal personality in the Philippines. The debts and obligations of the partnership are wholly borne by the partners.

Corporations- In the Philippines, a corporation is comparable to an LLC or a limited liability company in other countries. Under the current regulations governing the incorporation of corporations by foreigners, a foreigner may register a corporation. The six categories of businesses that a foreign entity may set up in the Philippines are listed below. These consist of:
1. Regional Operating Headquarters (ROHQ)
2. Domestic Corporation
3. One Person Corporation
4. Branch Office
5. Representative Office
6. Regional Headquarters (RHQ)

Local company or subsidiary- A foreign business may establish an entity in the Philippines via the following forms: Subsidiary or a domestic corporation. It has a distinct legal personality from its stockholders as a corporate concern. A Limited Liability Company or a Private Limited Company with comparable structure can be found in various nations.

The minimum number of incorporators needed to form a domestic corporation has been reduced from 5 to 2, but the maximum number of incorporators has only been set at 15, in accordance with the most recent revisions to the Revised Corporation Code and the most recent rules introduced in the SEC Memorandum Circular No. 16 of the 2019 series. This makes it possible to form corporations with two, three, and four members.

These incorporators, who must sign the articles of incorporation, were first stockholders. Each incorporator shall continue to hold at least one share when the company was incorporated. The most recent changes allow any combination of partnerships, associations, corporations, and natural persons to register a domestic corporation, when before this was only possible for natural persons.

The new Commercial Code does not require a minimum capital stock for stock corporations unless a different law specifically mandates it.

One-person business (OPC)- The Revised Commercial Code and SEC regulations have also made it possible to register a one-person corporation (OPC), in which a single natural person can establish the company and serve as its sole stockholder. The corporation's sole incorporator, director, and president is this individual. The OPC's obligation is constrained by the corporate assets' scope and does not extend to the corporation's individual assets.

The establishment of an OPC by a foreigner is permitted, but they must once more adhere to the Foreign Investment Negative List. A nominated stockholder and an alternate nominee stockholder must also be named in the articles of incorporation by the OPC. If the primary person dies, these people will take over the OPC's duties. Once more, the OPC has 15 days to nominate a corporate secretary or treasurer. When providing a surety bond, the sole shareholder might serve as the treasurer.

Branch Office- Foreign businesses looking to establish a presence in the Philippines may use the branch office structure. This branch office is an outgrowth of its foreign parent company in Philippines and not a separate legal entity. Therefore, the foreign business is in charge of the company's entire debt load. It has been incorporated in accordance with the laws of the foreign country in which it has done so.

Foreign firms must also select a resident agent to receive letters from government agencies on behalf of the branch office. A domestic corporation or an individual may serve as this resident agent.

The same as for a domestic corporation, there are setup charges. It can register with 5,000 if it exports more than 60% of its total sales. Additionally, the overseas parent firm is obliged to provide an annual deposit of 5,00,000. Additionally, if the branch office's annual revenue exceeds $10 million, then the There will be a 2% annual increment on the first $5,000.

Representative Office- A foreign business may start by setting up a branch office in the Philippines prior to making sizable investments there. It does not have permission to produce income both inside and outside of the Philippines, despite the fact that it is an extension of its international parent business and that its parent company alone is responsible for paying its responsibilities.

It is only allowed to serve as a liaison office, supporting its parent business's marketing and sales efforts, performing market research, checking the quality of items related to the foreign company, etc. The required capital is at least $30,000. It hasn't been allowed to make money or provide services to other clients. Additionally, it is not eligible for tax benefits.

Regional Executive (RHQ)- A Regional Headquarters is an administrative division of a foreign organization that has been granted permission to inspect, monitor, and oversee the operations of the corporation's branches, representative offices, and affiliates globally. It serves as a hub for communication for all of its partners. It is not permitted to make money and does not have a separate legal identity. It can carry out developmental projects in the Philippines, obtain raw resources, perform research and development, and train staff.

An RHQ must choose a resident agent and provide documentation of its registered business address, just like Representative Offices. $50,000 is the required paid-up capital to launch a RHQ. It is prohibited from running the business of its parent company’s affiliations, branches, and affiliates. It is unable to generate any revenue or provide services to outside parties. With the customers of its parent firm in the Philippines, it may pursue any business. Additionally, none of these operations may be carried out by its parent firm through its RHQ.

Regional Operating Headquarters (ROHQ)- An extension of its overseas parent firm, the Regional Operating Headquarters (ROHQ) is able to make money by providing the authorized services to its head office, subsidiaries, branch offices, and other affiliates all over the world. It is not a distinct legal person.
It is necessary to name a resident agent and provide documentation of a registered business address, just like RHQ. The minimal paid-up capital needed to establish a ROHQ is $200,000. It cannot solicit business from any other firm by providing any qualified services for anybody other than its parent company and its affiliates.

Documents Required for Philippine Company Registration

In the Philippines, the following paperwork is necessary for company registration:
Filing a registration application
A copy of the document (Board Resolution, Director's Certificate, Secretary's Certificate, or equivalent document) that authorizes the company to invest in the corporation that is going to be formed and that designates a signatory on behalf of the corporation must be duly authenticated by a Philippine Consulate or have an apostille attached to it
Verification of Notarized Articles of Incorporation
A name-reservation slip for the business (before beginning the registration process, the applicant must reserve the name of the business)
Filipino Tax Identification Number (TIN) directors, officers, and incorporators
The Articles of Association should include the tax identification number (TIN) of the principle and signatory (or passport number in the case of international investors).
Authentic identification for the incorporators, directors, and officers
Evidence of the registered office address in the form of a lease agreement or land title certificate

Prerequisites for Philippine Company Formation

Before beginning the process of business formation in the Philippines, the ensuing prerequisites must be satisfied-

Setup specifications- Every domestic corporation must have a minimum of two incorporators or investors and a maximum of fifteen. Each of these stockholders must own at least one share of capital stock. Most of these incorporators should be people who live in the just the Philippines.
In order to register with the Bureau of Internal Revenue (BIR) and other local government agencies, you must also provide proof of your business's legal address. In accordance with the most recent modifications, it is now possible to adopt an official virtual address throughout the registration process and switch to the physical address after it is complete.
Choosing corporate officers- For the purpose of registration, the following three officers must be appointed by all local corporations in the Philippines:
1. President
2. Treasurer, and
3. Corporate Secretary
A foreign national who does not currently reside in the Philippines is eligible to run for president. However, they must also hold at least one share of capital stock and be a director.
Once more, a foreign national may hold the job of Treasurer. Such a person must, however, be a Filipino citizen. One who is a Philippine citizen and a sole resident of the Philippines may hold the job of corporate secretary.

Capital Minimum Requirements- The minimum capital required for domestic corporations with 100% Filipino ownership is $5,000, or $100. A local corporation with at least 60% Filipino ownership and 40% foreign ownership is subject to this criterion. The minimum capital requirement is $200,000 in cases where foreign ownership in the domestic corporation is sought to be greater than 40%. For businesses that engage in advanced technology-related operations or have at least 50 direct employees, an exception has been made.

Restrictions- Regularly, the Philippine government removes specific sectors of the economy from which domestic firms with foreign ownership are prohibited from operating from a negative list known as the Foreign Investments Negative List.

Philippines Company Registration Process

The following steps must be taken in order to register a company in the Philippines-

Philippine government website for registering names SEC
Assembling and preparing the aforementioned paperwork for submission to the SEC
Getting licenses and permits
Signing up with the BIR
Signing up with a number of government organizations

Registration of a name with the SEC- Selecting and reserving the preferred corporate name with the SEC is the first step in registering a corporation. The Securities and Exchange Commission of the Philippines must receive the applicant's reservation for the desired name.
Preparation assembling the aforementioned documents, and submitting them to the SEC- The applicant must next compile and collect the necessary paperwork before submitting it to the Philippine Securities and Exchange Commission. The required documentation have already been mentioned.
Getting licenses and permits- Before starting the company activity, the applicant must also secure a variety of licenses and licences from various government departments and authorities. The local government entities where the corporation will be located must be asked for permission. These consist of-
Clearing the barangay
Mayor's Permit
Business to Operate

Registration with the BIR- The corporation must register with the Bureau of Internal Revenue (BIR) and get the following documents before starting its business operations-
Certificate of Registration under BIR
Registration Certificate for Books and Accounts
Cash Register Machines (CRM), or the Power to Print Receipts/Invoices
Point of Sale Machines (POS)

Signing up with a number of government organizations- The domestic corporation must register as an employer with the following government bodies if it plans to hire staff-
Department of Labour and Employment (DOLE),
Social Security System (SSS),
Home Development Mutual Fund (Pag-IBIG Fund), and
Philippines Health Insurance Corporation (philHealth)
All foreign investors, whether they are natural or legal persons, must get a Tax Identification Number (TIN) after the firm is incorporated. The General Information document submitted to the SEC is intended to include this TIN.

FAQs

Concept of LLP

LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.

Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

Structure of LLP

LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.

Advantages of LLP

LLP form is a form of business model which:

(i) is organized and operates on the basis of an agreement.

(ii) provides flexibility without imposing detailed legal and procedural requirements

(iii) enables professional/technical expertise and initiative to combine with financial risk-taking capacity in an innovative and efficient manner

Other Countries where this form is available

The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.

Difference between LLP & ‘Traditional Partnership’

Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.
Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct

Difference between LLP & Company

A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners.
The management-ownership divide inherent in a company is not there in a limited liability partnership.
LLP will have more flexibility as compared to a company.
LLP will have lesser compliance requirements as compared to a company.

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