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Starting A Small Business in the Philippines

Most of the tourists find the Philippines attractive because of its beautiful scenery, adventure, and many more. If you are looking for an opportunity to start your own business, the Philippines is also an ideal place for you. I’m going to share with you what I did and the step by step process I took in starting a small business in the Philippines.

Starting A Small Business in the Philippines / How to Open a Resort in the Philippines

Before I get detailed on how the process of starting a small business in the Philippines can be, let me explain some of the good reasons why you should travel and do business in the Philippines.

Reasons to do Business in the Philippines

One of the truly wonderful things about the Philippines is that they speak English here. It is actually one of the two official languages recognized by the government and taught in school. Statistically, the Philippines is almost always in the top 10 for English-speaking countries worldwide depending on the methodology used to interpret the numbers.

The Educational system here teaches English from the beginning. College and University textbooks and reference materials are almost all in English especially for complex trades like Nursing, Medicine, Law, and Info Tech.

So that being said, almost everything here is in English, so you don’t have to worry if you don’t know how to speak the local language.

Business 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. For example business contracts, agreements, etc. are almost invariably written in English. These agreements are accepted in every court. This is not something you will find in many other countries where English is not the First Language.

The business license you will see on the wall of an establishment is most likely written in English. The documents you will complete to register a Limited Company will be in English. 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 are unintelligible to you!

This reason alone should be enough to convince you that the Philippines is very user-friendly.

Ease of Travel in the Philippines

Now, what does this mean to you as a tourist or the person looking for a new home? It means one less complication in your travels and huge benefits when you want to do something as simple as signing a lease, travel around the country sightseeing, or get directions from locals regardless of how far off the “beaten path” you happen to wander.

I guarantee that anywhere you go in the Philippines you will find people both willing, able, and happy to assist you in English.

English is the international language and I understand that there are many countries where this is not the first language. However, if you are going to travel or you are going to live in a country outside of your homeland then it will be nice to know that the only language you really need to know or to learn is the international language of the world.

Now let’s talk about opportunities for starting a small business in the Philippines.

Opportunities Abound in the Philippines

There’s a lot of opportunities here in the Philippines than you think, but the same as everywhere else it’s also not that easy to get. To capture these opportunities, you need to dig a little deeper, search a little harder, and boldly go where you may never have gone before.

Fortunately, I was ideally suited for this kind of task when I arrived in the Philippines. This has been my pattern since I left high school.

Some of the main things I look at when I want to start a new business is:

  • An idea that needs a location
  • A location that needs an idea

To understand it better, I’ll give you some small and simple examples.

An Idea That Needs Location

In Cebu City, during the Sinulog Festival, there are some artists that do henna tattoos with color in them. While at Boracay beach all the henna tattoos are just plain black. If someone would do colored henna at Boracay Beach, that will be a great business.

This is just one good example of a great idea that needs a location.

A Location That Needs an Idea

You are walking down the beach, any beach, now this is a pretty good location. You see people with their hands full of gadgets, money, wallets, phones, iPods, Kindles, etc. Obviously, they all want to have their toys with them but then, they’re too scared to leave them on the beach and go for a swim!

A great idea here that can be a business would be storage lockers every hundred meters.

I see these possibilities every day but you must understand this. In doing business in a foreign country, you must do something that the local people cannot do, otherwise, they will simply open up beside you and undercut your price.

There are many ways to do this but the easiest is to do something to Western standards. The customers you want are invariably going to be international tourists, businesses, or upper echelon Filipinos. That’s where the money is.

If you have already decided on the area you want to do business, you cannot just walk into a real estate office in this country and ask for a list of available properties. These services simply do not exist here.

To get what you need all you have to do is get your flip-flops, shorts, hat, sunglasses, phone, camera and walk around with your eyes wide open. You will see lots of stuff like this everywhere…

Once you get your location and the idea for your business, now it’s time to go to the step-by-step process of starting a small business in the Philippines.

Opening a Business in the Philippines as a Foreigner

Legally a foreigner cannot have a business license in their name in the Philippines. PERIOD. Do not believe otherwise. So how do you go about starting a small business in the Philippines LEGALLY & SAFELY?

Here I’ll give you some advice on starting a small business in the Philippines.

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 including 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 of these 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.

Pointers to Follow

Here are some pointers you can follow;

  • Remember that the most important position in the company is the Secretary. They have signing authority. 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. Partnerships require a tremendous amount of trust and are predicated on ALL partners being self-motivated, dedicated, 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, memorandums of agreement, etc. Get everyone to sign, get everything documented and notarized. 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.

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, personally accomplish this. It is not that complex but your presence will create untoward attention and the language/culture barriers will unnecessarily confuse matters.

However, I do not suggest using a third party or service to accomplish this either. These are ongoing tasks and you will always need a staff member capable and adept at dealing with matters on a Local, Municipal or National governmental level.

As with starting a small business in the Philippines, you do not 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 circumvent the law, you will surely get in trouble for that. Instead, follow it and use it to your advantage when starting a small business in the Philippines.

If you have any other questions or clarification about starting a small business in the Philippines, click here to contact me through our contact form. Even better come visit me here at one of my BADLADZ Resorts in Puerto Galera.

Good Luck

Cheers,
Sean

P.S. – If you can’t make it out to Puerto Galera to have a chat and would like to know more about starting a small business 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.

Editors Note: This blog post was originally published March 14, 2013, and has been updated with revised and additional content.

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