Advantages of a Corporation

1. Owners have limited Liability. A corporation is considered by law as a separate and distinct
legal entity. Thus, owners of corporation or shareholders are only indebted to the extent of their
interest in the corporation. Corporations have limited liability. This means that their creditors can
only run after the assets of the corporation and not the on the personal assets of the stockholders
in the settlement of the corporations debts or liabilities.
2. It can exist with continuity. The power of succession gives a corporation continuous
existence. Unlike a sole proprietorship, where the death of the owner proprietor ceases its
existence, the death of a shareholder will not terminate the corporation. The shares of ownership
or interest of a corporation can be transferred from one owner to another owner. A corporation
continues to exist until the shareholders decide to dissolve it or merge with another business.
3. Shares of ownership are transferable. The shares of stock or interest of a publicly traded
corporation can be traded easily though a stockbroker. Shares of corporations are freely
transferable except when shareholders have buy-sell agreements restricting when and to whom
share may be sold or transferred. Securities laws and regulations may also limit the transferability
of certain shares. For non-publicly traded corporations, the stock certificate can be transferred or
assigned to another owner by executing a deed of assignment of shares of stock.
4. It attracts more investors. Corporations attract investors because of its stock structure,
perpetual existence, ownership transferability, and limited liability. Attracting more investors allows
a corporation to raise more capital or equity to manage and expand their operations.
Furthermore, because of a more regulated form of corporation and the fiduciary duties of its
board of directors, it earns more trust and confidence not only from investors, but also from its
employees, creditors, suppliers, customers and other outside stakeholders.
5. You can be an employee of your own corporation. Since the corporation is a distinct entity
from its owners or shareholders, they can become the corporations employees or officers. Thus,
they can receive salaries or compensation income aside from the dividends they may receive
from the corporation. They can also be eligible for reimbursement or deduction of expenses they
incurred related to their employment with the corporation.
6. The corporation pays its own tax. As a separate legal entity, a corporation is also a separate
taxpayer from it owners. It has its own Taxpayer Identification Number, and it pays its own taxes,
such as corporate income tax, business taxes and withholding taxes. The owners or stockholders
pay their own taxes on the compensation and or dividend income they receive from the
corporation.
7. The management or decision making is shared by the board of directors, not sole individual.

Disadvantages of a Corporation
1. Incorporation is costly. Incorporating a business needs to file with the Securities and
Exchange Commission (SEC) and may involve a lot of formal and legal papers, such as by laws,
articles of incorporation, affidavit and board resolutions. This is sometimes done by getting the
service of a corporate attorney or firms which are specialized in incorporating a business. It may
also require higher amount of initial or paid-up capital for other types of corporation like financing
and lending corporations. Furthermore, the amount of subscribed capital is taxed with

documentary stamp tax, which may result to additional expenses to be incurred by the
incorporators.
2. Corporations are highly regulated. Ordinary corporations are regulated by the SEC. Special
corporations may be required with secondary licenses and are further regulated by other
government agencies, such as Bangko Sentral ng Pilipinas (BSP) for financing and lending
companies, Commission on Higher Education (CHED) for companies operating secondary
schools and Insurance Commission (IC) for insurance companies. Moreover, corporations also
need to comply with the quarterly or annual reportorial requirements with the SEC and other
agencies requiring those reports for certain types of corporations. This also means that the more
compliance it requires, the more paper works and cost it involves. And when there are more to
comply, bigger penalties are awaiting to be paid if they are not complied.
3. Limited liability may discourage creditors. The limited liability feature of the corporation can
be an advantage for stockholders. However, it can also be a disadvantage when a corporation
doesnt have a good financial condition and performance. Because of the limited liability, a
corporation with a low credit score may discourage creditors to lend their money to the
corporation.
4. It may result to double taxation. Since the corporation is already taxed on its income,
distributing this income to shareholders in the form of dividends may result to double taxation.
This is because the dividend income received by the shareholders (natural persons) is also taxed
on their personal income tax returns.
5. It is not easy to dissolve. Corporations are difficult to dissolve as it is also difficult to form.
Everything is regulated from formation, to operation, and to dissolution. An application for
dissolution must be filed with the S.E.C with complete requirements, including tax clearance with
the Bureau of Internal Revenue. The liquidation process is also regulated to ensure that the rights
of any creditor having a claim against it are not prejudiced.

Basic Requirements and Procedure in Registering a Corporation

Here are the basic requirement and procedure in registering a corporation:

1. Reserve and Register Your Business Name in Securities and Exchange

Commission (SEC), as follows:

Check if your desired business name is available via SEC online website or at SEC
Office in Mandaluyong

If available, register/reserve your business name via SEC online website or at SEC
Name Verification Unit SEC Office in Mandaluyong

Prepare, sign and notarize the following:

Articles of Incorporation;

By Laws

Treasurers Affidavit; and

Joint affidavit of two incorporators undertaking to change corporate name

immediately upon receipt of notice or directive from the Securities and Exchange
Commission that another corporation, partnership, or person has acquired a prior
right to the use of that name or that name has been declared misleading,
deceptive, confusingly similar to a registered name, or contrary to public morals,
good customs or public policy. (Not required if the Articles of Incorporation have a
provision on this commitment).

Submit notarized documents to SEC Office in Mandaluyong City

Claim your SEC Certificate of Registration

Processing Time: At least one (1) week upon submission of complete documents

2. Acquire Barangay Clearance

Once the corporation is registered with SEC the next step is to get a barangay
clearance in the barangay where your business is located.

Here are the basic steps

Go to the barangay where your business is located to secure and fill-up application form

Submit your completed application form together with the following:

Certificate of Business Registration from SEC

Two (2) valid IDs

Proof of Address such as Contract of Lease (if rented) or Certificate of Land Title
(if owned)

Processing Time: 1 day upon submission of complete documents.

3. Acquire Business Permit from the Mayors Office

Once you have a Barangay Clearance Certificate, the next step is to acquire a Business
Permit in the municipality where your business is located.
Here are the basic steps and requirements:

Go to the municipal office where your business is located to secure and fill-up
application form

Submit your completed application form together with the following:

Certificate of Business Registration from SEC

Barangay Clearance Certificate

Two (2) valid IDs

Proof of Address such as Contract of Lease (if rented) or Certificate of Land Title
(if owned)

Processing Time: At least one week upon submission of complete documents. But It
can take longer depending on the permit requirements based on the industry.

4. Register with the Bureau of Internal Revenue (BIR)

Once you have the Mayors Business Permit, you can now register with the BIR.

Here are the basic steps and requirements:

Go to the Regional District Office (RDO) where your business is located

Fill-up registration form as follows:

BIR Form 1903 Application for Registration (For Partnership/Corporation)

Submit completed registration form together with the following:

Certificate of Registration form SEC

Barangay Clearance

Business Permit From the Mayors Office

Proof of Address such as Contract of Lease (if rented) or Certificate of Land Title
(if owned)

Valid IDs, if applicable.

Pay the Registration Form (BIR Form 0605) and Documentary Stamp Tax (BIR Form
2000), if applicable.

Register your book of accounts and receipts/invoices.

Claim your Certificate of Registration (BIR Form 2303)