What are the differences between a Sole Proprietorship and a One-Person-Corporation (OPC) in the Philippines?
Under Philippine law, sole proprietorships and one-person corporations (OPCs) are two distinct business structures with key differences in legal status, liability, taxation, and management. Let’s explore each structure and their main differences:
Sole Proprietorship
A sole proprietorship is the simplest form of business entity in the Philippines. It is owned and operated by a single individual, known as the sole proprietor[1][5].
Key features:
- Legal status: A sole proprietorship is not considered a separate legal entity from its owner[3].
- Liability: The owner has unlimited personal liability for all debts and obligations of the business[1][3].
- Taxation: Sole proprietors are subject to personal income tax rates. If annual revenue is below ₱3 million, they can opt for an 8% tax rate on gross sales/receipts[3][5].
- Registration: Requires registration with the Department of Trade and Industry (DTI), local government units, and the Bureau of Internal Revenue (BIR)[5].
- Management: The owner has complete control over all business decisions and operations[1][5].
One-Person Corporation (OPC)
An OPC is a relatively new business structure in the Philippines, introduced by the Revised Corporation Code in 2019. It allows a single individual to form a corporation[2][4].
Key features:
- Legal status: An OPC is recognized as a separate legal entity from its owner[3][4].
- Liability: The owner’s liability is limited to their investment in the corporation, protecting personal assets[4][7].
- Taxation: OPCs are subject to corporate income tax rates, currently at 25% or 20% (depending on net taxable income and total assets)[3][6].
- Registration: Requires registration with the Securities and Exchange Commission (SEC)[2][5].
- Management: The single stockholder serves as the sole director and president of the OPC[2][4].
Key Differences
- Legal Separation: The most significant difference is that an OPC has a separate legal personality from its owner, while a sole proprietorship does not[3][7].
- Liability: OPC owners enjoy limited liability, whereas sole proprietors have unlimited personal liability for business debts[4][7].
- Taxation: Sole proprietorships may benefit from lower tax rates, especially for smaller businesses, while OPCs are subject to corporate tax rates[3][6].
- Continuity: An OPC can continue to exist even if the owner dies or becomes incapacitated, whereas a sole proprietorship ceases to exist upon the owner’s death[6][7].
- Compliance Requirements: OPCs have more stringent compliance requirements, including the need to appoint officers, maintain corporate records, and file annual reports with the SEC[6][8].
- Capital Requirements: Sole proprietorships have no minimum capital requirement, while OPCs, although not required to have a minimum authorized capital stock, may need to meet certain financial obligations[2][5].
- Naming Convention: OPCs must include “OPC” in their business name, while sole proprietorships can use trade names or the owner’s name[3][5].
In conclusion, the choice between a sole proprietorship and an OPC depends on various factors, including the business’s size, risk tolerance, growth plans, and the owner’s preference for simplicity versus legal protection. Sole proprietorships offer simplicity and potentially lower taxes for small businesses, while OPCs provide limited liability and a more formal corporate structure that may be advantageous for larger or riskier ventures.
Citations:
[1] https://businessregistrationphilippines.com/sole-proprietorship/
[2] https://philippinesbusinessregistration.com/company-registration/one-person-corporation/
[3] https://mpca.com.ph/sole-proprietorship-vs-one-person-corporation-opc/
[4] https://www.talampaslaw.com/uncategorized/one-person-corporation-vs-sole-proprietorship/
[5] https://www.usemultiplier.com/philippines/sole-proprietorship
[6] https://www.myoffice.com.ph/2023/04/20/sole-proprietorship-vs-opc-which-one-is-right-for-your-business/
[7] https://loft.ph/sole-proprietorship-vs-opc-differences/
[8] https://www.floresofrinlaw.com/articles/8utjwq856v7ufbfrnhf3yi66sc4tw8
