So, you decided to start a business on your own and you can’t decide if you should operate as a Sole Proprietorship or a One-Person Corporation (OPC). Both have its advantages and disadvantages. Here is a breakdown on the difference between the two to help you decide which entity is a better fit for your business model.
|Sole Proprietorship||One-Person Corporation|
|Definition||Simplest form of business. Not a legal entity but it
refers to a person who owns and is accountable for a business.
The Revised Corporation Code defines the OPC as a “corporation
Do note that certain types of businesses cannot operate as an OPC such as
|Cost||Government fee is an estimated P15, 000||Government fee is an estimated P33, 000|
|Liability||The owner is directly liable. This means the law does not put any
distinction between the company and the individual. The person inherits both
the assets and income of the business, but also its debts and losses.
|An OPC is a separate entity from the owner. Should the
company lose money or go in debt, the personal assets of the owner will not
|Name||Can be a fictitious name or the name of the individual.
Since it isn’t a separate entity, it won’t have a label.
|The company will have the label “OPC” at the end.|
The full income of the owner is taxed, including his/her
In addition, if revenue is below P3 million, the entity is
For income tax rate, an OPC has a flat 30%.
An OPC can also avail of the Optional Standard Deduction of
|Permanence||Should the owner pass away, the assets and liabilities
will pass to his or her heirs. However, the permits/licenses of the business
expires. So, should any heir would want o continue the business, they will
need to apply for new licenses.
|Perpetuity is preserved should the owner pass away. As
part of the application process, the owner is required to designate a nominee
who will takeover the business temporarily, until a proper turnover can be
|Scaling||Should the company grow and have opportunities to scale
(ex. Expansion, investors, etc.) it will need to switch to a corporation, it
can be done. However, this may have accompanying tax costs and may be time
consuming to close the sole proprietorship and open the corporation.
|It’s very easy to switch from an OPC to a domestic
corporation. The OPC just needs to amend the articles of incorporation and
follow the required governance of corporations.
With these, now it’s time to consider what type of business you’ll be setting up and to see which entity is best suited for your company. Do you plan creating handcrafted jewelry during the weekends and selling them online, while keeping your day job? Registering as a sole proprietor would be a good fit. Or, do you plan on setting up your own brand with its own stores in various malls? Maybe consider setting up an OPC instead.
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