Currently, aspiring entrepreneurs all over the world are finding their path towards business ownership. While the globalization of markets is irreversible and sometimes challenging, it carries unique opportunities for companies to sell their services and products to anyone, anywhere. As one of the fastest growing economies in Asia, the Philippines is attracting a record number of entrepreneurs from across the world in recent years, and the trend is likely to continue.
Despite growing political tensions between the Philippines and the United States, the latter remains the third largest foreign investor in the Philippines, making it a vital partner for the growth of the archipelago’s economy.
One of the major difficulties that American companies encounter in the Philippines is to understand how to navigate the complex business regulations and business registration requirements of the country, which couldn’t be more different from those in place in the United States.
Over the past two years, Triple i has helped more than 50 American companies register their business operations in the Philippines. Based on this experience, here are three of the biggest differences between setting up a company in the Philippines versus the United States .
Here we highlight some of the key differences when setting up a company in the Philippines or USA. As you might be aware, it is vital to determine the type of entity you are to establish, as your legal structure will directly impact the tax exposure and the legal liability of the business and its owners.
1. Types of Corporations
Despite some legal and tax differences inherent to the corporate and tax codes of each country, sole proprietorship and partnerships are some of the legal structures with similar aims. They are easier to be registered and offer an easy route for small businesses owners who want to be directly involved in the daily operations of a business. The biggest difference lies in the different types of corporations you can set up in the United States as opposed to the Philippines, where the options are limited to a stock or a non stock corporation. Examples of non-stock corporations include the following: educational institutions, non-profit organizations, associations, foundations, etc. Stock corporations are companies whose main purpose for existence is to maximize profits for its shareholders.
On the other hand, there are five main types of corporations in the United States: Limited Liability Corporation, C-Corporation, S-Corporation, Professional Corporations and Non Profit Corporations. While all offer limited personal liability and ability to raise capital, each type has different specificities pertaining to the nature of the shareholders and tax exposure.
2. Business Structures
While corporations in both countries require the appointment of a board of directors, the road to meeting all of the requirements imposed by the Securities and Exchange Commission in the Philippines is less straightforward than in the United States. A corporation in the Philippines is required to appoint at least five directors who must also be shareholders, in addition to a corporate treasurer, a corporate secretary and a president. The majority of these directors should be residents and the president cannot be either the corporate secretary or the corporate treasurer.
Whereas the laws pertaining to the director’s requirements vary across states, entrepreneurs wishing to set up their business in the United States can get incorporated with just one director and a registered agent such as the business’ lawyer or a service company who is responsible to collect summons.
3. Registering a Business
It takes 28 days, 16 procedures and an infinite number of documents to set up a business in the Philippines. Globally, the Philippines stands at a disappointing 171th place in a World Bank study ranking 190 economies based on the ease of doing business in their country. Meanwhile, American lawyers indicate that it take an average of only six days and four procedures to set up a limited liability corporation in the United States. A higher use of technology by the government and a lower number of permits to be secured and are some of the reasons behind this discrepancy.
Triple i Consulting has been supporting foreign companies in their expansion to the Philippines since 2007. If you would like to speak with one of our business consultants specialized in business incorporation, contact us and we will provide you with detailed advice on how to set up and run your business in the Philippines.