Business Law for Non-Lawyers

Before you register your business, it’s important to know which structure best fits your goals, resources, and risk appetite. Below are the main business structures in the Philippines, their legal bases, and their pros and cons.

1. Sole Proprietorship

• Legal Basis: Business Name Registration Act (Republic Act No. 3883, as amended)
• Description: Owned and operated by one person. Easiest and least costly to set up.
• Example: A sari-sari store, freelance consultancy, or small online shop run by one person.
• Pros:
  • Simple registration process
  • Full control over business decisions
  • Minimal regulatory requirements
• Cons:
  • Unlimited personal liability (personal assets can be used to settle debts)
  • Limited access to capital

2. Partnership

• Legal Basis: Civil Code of the Philippines (Articles 1767–1867)
• Description: Formed by two or more persons who share profits and liabilities. Can be general (all partners liable) or limited (liability limited for some partners).
• Example: Law firms, accounting partnerships, architecture firms.
• Pros:
  • Can pool resources and expertise
  • Shared responsibilities
• Cons:
  • Disputes between partners may arise
  • General partners have unlimited liability

3. Corporation

• Legal Basis: Revised Corporation Code of the Philippines (Republic Act No. 11232)
• Description: A separate legal entity owned by shareholders. Managed by a board of directors.
• Example: Large retail companies, hotels, manufacturing firms.
• Pros:
  • Limited liability for shareholders
  • Easier to raise large amounts of capital
  • Perpetual existence
• Cons:
  • More complex and costly registration
  • Requires regular reporting and compliance

4. One Person Corporation (OPC)

• Legal Basis: Revised Corporation Code of the Philippines (RA 11232, Sections 116–132)
• Description: A corporation with a single stockholder, allowing full control with limited liability.
• Example: A solo entrepreneur wanting liability protection for a small to medium-sized venture.
• Pros:
  • Limited liability for the sole owner
  • Full decision-making power
  • Separate legal entity from the owner
• Cons:
  • More requirements than sole proprietorship
  • Annual compliance obligations

5. Cooperative

• Legal Basis: Philippine Cooperative Code (Republic Act No. 9520)
• Description: Owned and operated by members for mutual benefit, often in farming, lending, or consumer goods.
• Example: Credit cooperatives, farmers’ cooperatives, consumer cooperatives.
• Pros:
  • Democratic control (one member, one vote)
  • Certain tax exemptions if compliant
• Cons:
  • Decision-making can be slower due to group consensus
  • Requires strong member participation

💡 Tip for New Entrepreneurs:
If you’re starting small and want simplicity, a sole proprietorship might work best.
If you need partners or want to raise significant capital, consider a corporation or partnership.
If you want the protection of a corporation but remain the sole owner, an OPC is worth exploring.
For community-based ventures, a cooperative is ideal.

We will provide a more detailed discussion per structure in the succeeding posts.