Tuesday, August 10, 2010

Above Aboard: Part 9 Start Your Small Business Now

Now that we have a very effective business plan, a business plan that we promised to follow throughout our journey to our very own small business, it is now time to make everything legal. What's the first step? BUSINESS REGISTRATION!! Entrepreneur Magazine Philippines is generous enough to define what are the different types of business and the right government agency for each type of business. Read on. ^_^

The first step to operating a business responsibly: REGISTERING YOUR BUSINESS.

ONE OF THE MOST important steps a person who plans to put up a business must take is to register the enterprise with the proper government authorities. Registration enables the business to be officially recognized by the government, and gain all the privileges and responsibilities associated with the registration.

In addition, registering your enterprise will let people know that they are patronizing or doing business with a reputable organization. In turn, your business will be able to claim benefits from government that would be unavailable to you if you did not register your business.

Before actually registering the business, determine the type of business structure appropriate for your business.

There are four main types of business structure: sole proprietorships, partnerships, corporations, and cooperatives. Each type has its own advantages and disadvantages. Most business startups initially register as sole proprietorships or partnerships.


Single or sole proprietorships are best for entrepreneurs who intend to run or manage the business alone. Single proprietorships derive its legal personality from the entrepreneur. This means that the entrepreneur has absolute control over the business, while at the same time shouldering all its financial obligations. This also means that anyone with a claim on the business can run after your personal assets to settle your debts. 

To register as a sole proprietorship, one must go to the Department of Trade Industry (DTI), their branches or visit their website to register your business.


Another common business structure for startups is the partnership. A partnership is composed of two or more people and has a legal personality separate from those of the partners. What are the benefits of a partnership? The business partners can open bank accounts under a partnership's name. Your liability as a business partner is limited to your share of ownership in the company.

In a partnership, any property that belongs to the company cannot be appropriated for personal use by the business owners. 

Partnerships are governed by a document called the Articles of Partnership, a contract that spells out the terms and purpose of the partnership. This includes profit-sharing, exit clauses and other important concerns of the partners. There are two types of partnerships: general and limited partnerships. General partnerships are those where the decision of one partner is binding on all. A limited partnership on the other hand means that one or several partners are only liable for debts corresponding to their contribution.

Partnerships are registered with the Securities and Exchange Commission (SEC), which must be furnished a copy of the Articles of Partnership. Partnerships must also be registered with the DTI. 

The business partners must be prepared to pay one fifth of one percent of their capital as filing fee, and one percent of the filing fee as legal research fee.

Limited partnerships must have the suffix Ltd. to denote their status.

As sole proprietorships and partnerships grow, they often have to bring in more investors into the business. At this point, it would be wise to transform the business into a corporation.


Like a partnership, a corporation has a distinct legal personality and a limited liability feature. This means that all of its debts are its own, separate and non-transferable to its shareholders.

Like a partnership, a corporation must be registered with SEC. However registering a corporation is more complicated than listing it as partnership.

To form a corporation, there must be a minimum of five incorporators will also form its board of directors. The corporate power resides with the board although major decisions may require the permission of stockholders.

To register a corporation, one must submit  quite a number of documents to the SEC stating the proposed corporate name, address of the corporation and the names of the incorporators, details on capital stock, details of subscribed stocks/paid up stocks and the name of the treasurer. You will also have to pay filing fees, legal research fees, and documentary stamp taxes.

A corporation is regulated by the SEC, and is required to submit yearly reports called the General Information Sheet to the SEC.


A fourth corporate structure that is not often discussed is the cooperative. A cooperative is basically a group organized to obtain maximum economic benefit for its members, but it cannot be dominated by a single member or a group.

Like a corporation, it also has a limited liability feature.

Its registration requirements are the same as those corporations; cooperatives however are registered with the Cooperative Development Authority (CDA). 

Aside from the registrations required by the DTI, SEC and CDA there are other registrations that are required at the local level, such as the barangay and city/municipal governments. These registrations would often just involve bringing copies of your DTI, SEC, CDA registrations along with your lease contract or land title as well as paying some fees. You may also need to register your business with other government bodies, depending on your line of business.

Continue on Part 10 of Start a Small Business Now: EVERYTHING IN PLACE

Rewrite from Entrepreneur Philippines
January – February 2010 issue. All rights reserved.

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