# <center>*STARTING A BUSINESS*</center>

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[Image Source](https://www.entrepreneur.com/slideshow/300146)

<center>When we decide to start a business, it is a common dilemma for aspiring entrepreneurs to choose what type or form of business to put up.</center> 
<center>When you are starting a business, one of the things to immediately decide will be on its business structure.</center>  

A mistake in the form of organization can bring long-term damage to a business.  Despite the risks, most people decide without really having a good idea of the type that is really the best for their company. 

I am coming from the point of view of starting a business in the Philippines, subject to the Philippine laws and taxation.  I am sharing to you what I have learned and experienced for many years as Investment Promotion Officer for Cebu, Philippines.  Our office, the **Cebu Investment Promotions Center (CIPC)**, brought about the presence of most of the **Foreign Direct Investors (FDIs)** to Cebu thereby making the current, Mactan Export Processing Zones, Cebu IT Park, Cebu Business Park and other IT buildings of Cebu thrive to this date.  Sadly, because of lack of funding for the office and also because we felt that Cebu no longer needs the boost that it needed, our office closed its doors last 2013,   ending most of its run for two decades. Now, I am a happy a stay-at-home wife with two kids, and engaging with all of you through Steemit.

Going back, I cannot emphasize enough that choosing the right type of business entity is very important because this decision will greatly affect your tax payments, administrative tasks, business risks and business development.  In general, it is always recommended that you should go for a business structure that will give you the most protection and will yield the least obligations as possible.  It should give you ample protection of your rights as owner of the business, as well as security of all your personal assets, without drowning you in too much paperwork and legal requirements.

## <center>*So, how do you choose the right business structure?*</center>

First, you have to know what are the different types of business ownership that one can start.  In our case, under the Philippine laws, they are:

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[Image Source](http://theguinnconsultancygroup.com/gcg/the-most-common-mistakes-made-by-sole-proprietors)

**1. SINGLE / SOLE PROPRIETORSHIP** 
a.     Only one person controls and owns the business. He or she has full control and authority over all the assets of the business, thereby, reaping all the benefits of this business type.
b.     It is the most simple and inexpensive alternative.  If you have a very limited capital, then this may very well be your only option.  It is also the fastest to put up.  A large marjority of business in the Philippines, are sole proprietorships.  
c.      You and the business are legally the same, and this would mean that your company's liabilities are also your personal obligations, exposing you to greater risks.

There are many cases where a certain business is put up as a sole proprietorship at face value even though it is not really one.  The most common example of this is the case of most married couples.  When a husband and wife form a company, it is advised that it should be, at least, a partnership, since it involves two people.  A partnership allows two or more persons.  Many couples think that having the business under the name of only one of them does not matter if everything will be subject to conjugal or community property later on anyway.  There is a need to consult an expert to discuss all the possible consequences of this arrangement.

A sole proprietorship must apply for a business name and needs to be registered with the **Department of Trade and Industry (DTI)**.

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[Image source](https://www.linkedin.com/pulse/distinction-between-company-partnership-firm-services)

**2.  PARTNERSHIP** 

a.      It is a business structure owned by two or more individuals.  The owners are called “partners”.
b.     Under the Civil Code of the Philippines, this partnership is treated as a juridical person, which has a separate legal personality from all of its members.
c.       Partnerships can either be a *General* or a *Limited* partnership.  In a **General Partnership**, all of the partners have unlimited liability for the debts and obligations of the partnership. Whereas, in a **Limited Partnership**, there exists one general partner, who has unlimited liability while other partners have limited liability of only up to the amount of their contributions.
d.       Some types of businesses must be partnerships. (eg. professional practices like law and accounting)
e.        In the Philippines, if the capital exceeds Php 3,000 ($60), the partnership must register with the **Securities and Exchange Commission (SEC)**.
f.        To avoid quarrels and lawsuits later on, the partners must decide on a fair arrangement prior to setting it up.

**3. CORPORATION**

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[Image source](http://techonomy.com/wp-content/uploads/2012/09/kester_people-are-corporations.jpg)

A business structure owned by at least five or more individuals.  
a.       The owners are called shareholders and they all have liabilities limited to the amount of their share capital.
b.       The corporation is treated legally as a separate person, separate and distinct from that of its shareholders.
c.       This must also be registered with the **Securities and Exchange Commission (SEC)**.
d.        It could either be *stock* or *non-stock*.  A **stock corporation** has a capital divided into shares which are distributed to the investors, who in turn, receives dividends and allotments according to the number of shares that they are holding.  A **non-stock corporation** on the other hand, is an entity organized for public purposes like charitable, educational, cultural or similar purposes.  A non-stock corporation doesn't issue shares of stock to its stockholders.
e.         It is regulated also by the SEC, the minimum paid up capital must be Php 5,000 ($100). 

<center>Our choice on what is the appropriate legal structure for our future company has a profound impact on its eventual success, so do not take this decision lightly.</center>  
<center>One can only make a sound and wise judgment regarding this crucial matter if one have the basic understanding of its advantages and disadvantages.</center>

For all those who are not familiar with business terms, to give you an overview on how each business type differ:

1. The degree of control you want to have over the business.
      Sole Proprietorship – full control
      Partnership, Corporation – the control is shared with partners and shareholders
2. The degree of formal organization one needs.
      Sole Proprietorship – very simple, the least formal
      Partnership – moderately complex, can be quite formal
      Corporation – most complex, very formal
3. The need to protect against liability for business actions.
      Sole Proprietor – full liability, there is risk to lose personal assets
       General Partnership – the liability is shared with partners, there is a risk to lose personal assets.
      Limited Partnership – liability is shared with shareholders, no risk to personal assets
      Corporation – liability is shared with shareholders, no risk to personal assets
4. The ability to attract investors.
      Sole Proprietorship – It is quiet hard to attract investors.
      Partnership – It is moderately easy to attract and incorporate new investors.
      Corporation – it is easy to attract and incorporate new investors.
5. Legal and Tax requirements.
     Sole Proprietorship – simple and usually straightforward , but pays the most taxes among the three.
     Partnership – It is quite complex but have reasonable tax dues.
     Corporation – This is the most complex and can be tedious, but relatively pays the least amount of taxes.

I hope that I have shed some light on your decision if ever you are embarking on a new business venture.  I believe that you should give yourself enough time to study, especially the legal and tax requirements, before deciding on what to apply for.

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[Image source:](https://luckystaroffice.com/new/wp-content/uploads/2016/09/Corporate.jpg)

Lastly, always consider starting with the most simple business structure that is appropriate for your business venture.  And then adopt more complicated structures only when there is a necessity: such as concerns regarding authority, control and liabilities or when there is a specific legal or tax advantage.

@raquelita

(first of my Business Series)





*References:*

*The Corporation Code of the Philippines*
*Data from the Department of Trade and Industry (DTI)*
*Data from Securities and Exchange Commission (SEC)*

*(Assumption of 1USD equivalent to Php 50)*