web analytics

Starting A Small Business in the Philippines

by Sean

Two facts you need to know.

  • The foreigner will be putting up all the money.
  • A foreigner cannot have the business in their name. (Although foreigners can own condos!)

So how do we do it?

The simplest is to set up a Sole Proprietorship.  This is going to require, because of regulations in the Philippines, that the business to be in the name of a Filipino.  I understand that this is inherently unsafe, putting your business in someone else’s name, but there are some easy ways to safeguard yourself. First, lease your premises do not buy. Legally, as a foreigner, the lease contract can be in your name. Second, be sure to keep the receipts for everything you purchase to prove ownership.  Third, have all bank accounts in your name.

Leasing Property
This essentially gives you full control of the company and leaves the owner of the business license with very little leverage.  This person is also, usually, a trusted friend or spouse so you should be fairly safe.

The second way, which is infinitely more complex, is to set up a Philippine Corporation. Since the foreigner can only own 40% of this Corporation a situation is created where you absolutely must have Filipino partners and they must own 60% of the Corporation. Certainly you can see this being problematic as the foreigner, most likely, will be putting up all the money and usually the expertise as well. So what do the Filipinos add? Perhaps just an element of risk. There is no easy solution to this. Some will advise you to have the 60% shareholders sign the back of their stock certificates in preparation to be reassigned by you to a new shareholder of your choice. You keep the certificates in your possession. This is troublesome as the shareholder can simply deny having signed the certificate as there is no notarization. It is also illegal and violates the anti-dummy laws.
I think the avenue which has the least risk in this situation is for the foreigner to lend any capitol monies to the Corporation.  Create the correct paper trail with bank documents, minutes of meetings, and board resolutions. Also, make the shareholders and board members personally responsible for loan repayment.

You cannot set up either business vehicle by yourself so others will, inevitably, need to be involved in your business.
Warning ! A partnership is a sinking ship. Harsh words but, unfortunately, more often than not it is true.  Partnerships require a tremendous amount of trust and are predicated on ALL partners being self-motivated, dedicated and honest. Also, to be equal partners, they must invest equally. Very rarely have I seen this and most situations end in disaster.
So Remember, just as good fences make good neighbors, good contracts make good partners.   Business and law in the Philippines are almost entirely performed in English so write up contracts, memorandums of agreement etc. Get everyone to sign, get everything documented and notarized. Even if you never have any intention of using them in court they will serve as a reminder to all of their obligations to each other and the company.

Finally, when it comes to the process of creating your business and the actual nuts and bolts of proprietorships, corporations, business licenses etc. etc. I certainly do not advocate the foreigner to physically, personally accomplish this. It is not that complex but your presence will create untoward attention and the language/culture barriers will unnecessarily confuse matters.  However, I do not suggest using a third party or service to accomplish this either. These are ongoing tasks and you will always need a staff member capable and adept at dealing with matters on a Local, Municipal or National governmental level.

As with any business, you do not need to know everything BUT you must know how to hire the correct people for the job. Hiring in the Philippines

Yes you can DIY…….but carefully.

Here are some helpful links regarding the nuts & bolts

http://www.doingbusiness.org/data/exploreeconomies/philippines/starting-a-business/
http://www.cebuexpatservices.com/a-quick-guide-to-starting-a-business-in-the-philippines.php
http://www.sec.gov.ph

Previous post:

Next post: