Most travelers who stay on the islands for an extended amount of time will often wonder how they too can start their very own business in the Philippines. The number of opportunities to start your very own business here is endless. The fact that the rules are not as enforced as they tend to be in most western countries means the bar for entry in the country is actually quite low.
In this article, I will go over the process of starting your business here on the island. Offer you some useful tips to make sure you have the best chance possible in creating a profitable business here in the Philippines.
Reasons to do Business in the Philippines
One of the best reasons many foreigners and investors choose to do business here is that a majority of the population speaks English. It is also one of the two official languages recognized by the government and taught in the schools here.
The Philippines is almost always in the top 10 countries for English speakers worldwide. Its the perfect country for those who don’t want to worry about the hassle of hiring translators or running the risk of misinterpretation especially when it comes to important legal matters.
The educational system here is also taught in English from the very start. College and University textbooks are also printed in English especially for high-level trades including nursing, medical, law, and engineering. Everything here business-wise is conducted in English. You won’t need to worry when it comes to learning the local language while going through the process of starting and running your business here in the country.
Business is Conducted in English
This is a good benefit for someone who is from a country where English is the native language who would like to start a business here. Business contracts, agreements, etc. are almost always written in English. These agreements are accepted in every court without the hassle of there being any misunderstanding between different areas of the country. This is not something you will find in many other countries where English is more of a secondary language.
The business license you will see on the wall of an establishment is most likely written in English. The documents you will be completed to register a Limited Company will be in English as well. You have no idea what a benefit this is until you go to a country where you must hire and trust a Native speaker to fill in forms that you will be unfamiliar with and for this along the Philippines is very user-friendly.
Starting a Business in the Philippines as a Foreigner
Legally a foreigner cannot have a business license or entity in their name in the Philippines. PERIOD. Do not believe otherwise. If you talk to someone that says it can be done, they are most likely trying to get something from you. So how do you go about starting a small business in the Philippines Legally and Safely without the risk of losing all of your money on a poor investment?
Here I’ll give you some advice on how to do just that the right way. There are no shortcuts when it comes to this type of business venture. I always suggest doing your own research on these matters but here I can at least get you pointed in the right direction.
Starting a Small Business in the Philippines
Over the years that I stayed here in the Philippines, I had acquired different types of business with my current businesses. I have resorts, a dive shop, a spa, and an apparel store. This has given me some insight into some of the ins and outs of each business type.
You have two options here in my opinion that you can do and each have their own challenges which I’ll go over below. These two are the following:
- Sole Proprietorship
- Philippine Corporation
Each one will be useful for different scenarios. To know more about it, I will outline some steps that will be part of the process.
Sole Proprietorship
For me, this is the easiest & cheapest way to do it. Just follow these four easy steps.
We learned that us foreigner cannot have the business license in our name so this is what you do. This will be your first step.
- Look and hire someone you trust to work with you that has the required skill set for your business in mind. Offer them job security and good pay and have the business in their name under a Sole Proprietorship. Don’t worry, I will explain later why this is ok to do. Once you have that someone, next is to have the location and the property. This will be your next step.
- You can legally lease the business location and property under your name as a foreigner to do so.
- Set up all bank accounts, phone numbers, email addresses, electrical services, websites, online accounts/profiles, and supplier accounts under your name too.
- Also, put under your name everything you purchase and keep the receipt, this includes furniture, vehicles, appliances, stock for resale, etc.
Take Full Control
By following these steps you will have full control of the location, business accounts, and all the assets. So if in the event that your “trusted” person suddenly decides that they “own” the business then you can just simply take the license off the wall and hand it to them. That is all they own!
Not only they lost their job, but they are also responsible for all Internal Revenue liabilities and Employee obligations like severance pay, 13th-month pay, SSS, etc. since the license is under their name.
Now all you have to do is hire someone else and get another license. By doing so you do not even need to change the name of your business. Just add a notation in the corner of the sign saying: “NEW NAME” doing business as “OLD NAME” and your back in business.
Philippine Corporation
This is a lot more complex as Corporations have many more SEC registration & reporting requirements.
Legally the company must be 60% Filipino owned and many people believe they can skirt this law by having Dummy shareholders. Simply have the named shareholders sign their stock over at the beginning and keep the certificates in a safe till you need to reassign them. This is very risky and you will encounter some problems.
These are by far the main problem you may encounter;
- The documents are not Notarized, signed in front of a legal witness, so the shareholder can simply deny signing the document. I have seen people intentionally sign their names in a different fashion just so the signatures do not match.
- There is a chance that these people will band together to take control of the company. This is easy as the names of all shareholders are on the public record. I have seen it happen to a friend.
- You are violating the Anti-Dummy laws of the Philippines and there are severe penalties if caught.
Despite these problems, there is still some good news, some steps that you can follow to make it work safely if you want a corporation.
Here are some pointers you can follow:
- Remember that the most important position in the company is the Secretary. You need to be sure this position is held by someone very close to you that you can trust.
- Lend money to the corporation as a personal loan. Be sure to legally document everything with notarized documents & board resolutions.
- Give the shareholders jobs with a provision that they must surrender all shares should their employment cease for any reason.
- Make the Shareholders personally liable for repayment of the loans with proper documentation, personal guarantees, notarized agreements, and board resolutions.
- If they are fired or quit the board will absolve them of their responsibility for the debt once they surrender their shares.
Warning on Partnerships
Warning! A partnership is a sinking ship. Harsh words but, unfortunately, more often than not it is true especially here in the Philippines. Partnerships require a tremendous amount of trust and are predicated on ALL partners being self-motivated, determined, and honest. Also, to be equal partners, they must invest equally. Very rarely have I seen this and most situations end in disaster.
So Remember, just as good fences make good neighbors, good contracts make good partners. Business and law in the Philippines are almost entirely performed in English so write up contracts, forms of agreement, etc. Get everyone to sign, get everything documented and notarized. Take pictures or videos where you can when others are doing so. Even if you never have any intention of using them in court they will serve as a reminder of all of their obligations to each other and the company by doing so.
Finally, when it comes to the process of creating your business and the actual nuts and bolts of proprietorships, corporations, business licenses, etc. I certainly do not advocate the foreigner to physically, or personally accomplish this. It is not that complex but your presence will create unwanted attention. The language/culture barriers will unnecessarily confuse matters more than you may be expecting.
However, I do not suggest using a third party or service to accomplish your goals either. These are ongoing tasks and you will always need a staff member capable of handling these matters on a Local, Municipal or National governmental level.
As with starting a business anywhere in the world, you don’t need to know everything BUT you must know how to hire the correct people for the job.
In Conclusion:
Whatever you choose to start with, do not try to work around the law and cut any corners, you will surely get in trouble. Instead, follow the laws and rules and use them to your advantage when starting a business in the Philippines.
If you have any other questions or would like an outside opinion from someone that has been doing business here for over 20 years send me an email at info@badladz.com. Even better come visit me here at one of my BADLADZ Resorts in Puerto Galera. I will be more than happy to help guide you in all of your business ventures here in the wonderful country of the Philippines.
Good Luck
Cheers
Sean
P.S. – If you can’t make it to Puerto Galera to have a chat and would like to know more about starting your Business here in the Philippines. Consider checking out my book on Amazon – Making Pesos: Business in the Philippines – Lessons Learned, Rules to Live By and Business Opportunities in the Philippines.
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