In a perfect world, every person would have everything he wants in life. That perfect partner to go through life with. That perfect house to live in. That perfect blend of coffee to start a stress-free morning with. That perfect organization to build a career. But, alas, reality is different. The real world serves us with options both pleasant and unpleasant, that is, if one is lucky enough to be given options at all. More often than not, the only choice one gets in life is to deal. To settle for what’s best under the circumstances. And that is arguably no choice at all.
While it may not actually be quite as tragic or dramatic, having little to no choice as to where to invest one’s money can be a deal-breaker for would-be entrepreneurs or investors, and puts a crimp on investments in general. The same can spill over to and put a damper on the overall business climate of a country.
Recognizing this and aiming to improve the ease of doing business in the country and ultimately attract more players — local as well as foreign - into the country’s business scene, the Revised Corporation Code (RCC) has introduced significant changes to our commercial laws. One such change is the introduction of a new business vehicle, the One Person Corporation (OPC). Under the old code, setting up an ordinary corporation requires at least five incorporators. This requirement alone may prove too daunting for an entrepreneur who just wants to grow his capital. For one, it may be difficult to find co-incorporators who share the same vision for the business. There are also the squabbles that may potentially arise between the directors and officers over the control in the management of the business (at least that’s what the movies and telenovelas tell us). With the OPC, a solo entrepreneur can set up his own corporation and be its sole director and president. No power struggles. No drama. No need to get majority of the board members to agree on a resolution. The written resolution signed and dated by the single stockholder and recorded in the minute book will suffice. On top of that, no minimum capital stock requirement is generally applicable to an OPC, nor is it required to file by-laws unlike ordinary corporations, hence less paperwork.
But there’s already the sole proprietorship, one might argue. Isn’t that enough? It has been the go-to investment option for solo entrepreneurs for the past several years. What does the OPC have that the sole proprietorship doesn’t? “An OPC offers the agility and complete dominion of a sole proprietorship and the limited liability of a corporation.” This is how Securities and Exchange Commission (SEC) chairperson Emilio B. Aquino described the OPC in a press release. This may very well be the best-selling point for the OPC.
While a sole proprietorship may not be governed by special laws and not as strictly regulated as corporations, the liability of the sole proprietor is direct — his ass(ets) on the line so to speak. In contrast, the single stockholder’s liability in an OPC is limited since the OPC as a corporation has a separate legal personality. This limited liability of the OPC, however, comes with a condition. To provide safeguards against potential abuses, Section 130 of the RCC places on the sole stockholder the burden of proving that the OPC was adequately financed and that its property is independent of the stockholder’s. Failure to do so could make the sole stockholder jointly and severally liable for the debts and other liabilities of the OPC.
Another advantage of an OPC is its perpetual existence, except OPCs established by a trust or estate as the latter’s existence is co-terminus with the trust or estate. In case the sole proprietor no longer wants to continue his business, he has to dispose of all his assets which could be tedious as opposed to the OPC where the single stockholder can merely sell his shares to a willing sole buyer.
It is to be remembered that upon the death of the sole proprietor, only the assets of the sole proprietorship are transferred to his heirs — not the license to do business. This is not the case for an OPC whose license may be continued even after the death of the sole stockholder. Contrary to popular belief, it seems forever does exist. Well at least in this context. The perpetual existence of an OPC does away with the tedious process of having to register again, if the successors of the sole stockholder want to continue the business.
This doesn’t, in any way, suggest that OPC is the best option though. “Complete dominion,” “limited liability” and “forever” may, of course, not be everybody’s cup of tea. Some might find the less cumbersome, less complicated and less expensive process of setting up a sole proprietorship with the Department of Trade and Industry (DTI) desirable. After all, nobody wants to have the State, though the SEC, breathing down his neck all the time.
Suffice it to say that the OPC is a welcome addition to the business vehicles we currently have and desperately need to catch up with the times. We have been lagging behind our Southeast Asian neighbors in the World Bank’s Ease of Doing Business reports for the past few years. We have yet to see how the introduction of a new business organization will affect our overall ranking, if at all. The recent reforms in our commercial and tax laws can be taken as a positive indication that the Philippines is ready to step up her game and compete with her neighbors.
Gina Mae C. Dulnuan is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.