The One Person Corporation
By: Noel C Ducusin
For whom is it for?
Recent amendments to the corporation code introduced a new legal entity, i.e. the one-person corporation.
This type of corporation is not only owned and controlled by one person, it also shares the core aspect of a regular corporation namely its limited liability feature whereby the assets of the corporation are deemed separate and distinct from the assets of the shareholder-owner thus protecting the assets of the latter.
Many of the other benefits that apply to regular corporations also apply to one-person corporations such that it is not necessary for directors of the corporation to be residents of the Philippines and the corporation can be controlled by nonresidents subject to the usual limitation that it must have local officers to serve the positions of treasurer and corporate secretary.
Given the fact that the legal effects of both corporations are similar, what would be the point of using a one-person corporation?
The answer will depend on your specific type of business along with the purpose you had in mind.
We will discuss below the situations in which the one-person corporation is ideal.
Who The One Person Corporation Is For
Small And Medium Enterprises Controlled By A Single Shareholder
The beauty of a one-person corporation is its simplicity to set up in terms of the number of people you need. Unlike regular corporations where you need at least one other person to form your Board of Directors, there is no such need for the one-person Corporation. There is no need to check in with somebody else much less get their consent. You just get up and go so to speak.
Quick And Easy Extension Of An Existing Business
There is no need to set up a separate corporation if you are already doing business in the Philippines and just want to do business in another region also within the Philippines.
However, if you are the owner of an offshore company and would like a fast and simple way to extend your business into the Philippines, then the one-person corporation would be the quickest and most efficient way to do it. When you have your local corporation through the expedient of the one-person corporation, you can then avail of its benefits, e.g. preferential tax treatment, the ability to hire local workers without having to go through extensive government permitting, the ability to get business visas, and the like. We have a separate article on this and if you would like to know about the reasons why setting up a local corporation is ideal, you may click here.
Testing The Waters / Exploratory Initiatives
Sometimes you may want to venture out into a new industry but do not want to fully commit large amounts of resources just yet and want to test out the waters first so to speak.
The one-person corporation would be an excellent way to test the waters given its easy setup without the need of checking or getting the permission of others. The fact that the one-person corporation also has the limited liability feature of regular corporations also makes it a safe method to use.
As is usually the case when starting out, you will need a great deal of flexibility to adapt to changing market conditions. The one corporation is ideal for this requirement because you do not need to check in with other people.
Other times, you might want to test the waters not by going directly into business in that new industry, but instead by partnering up with someone else, either through a joint venture corporation or by acquiring an interest in an existing corporation already in that space. Again, the one-person corporation would be ideal for quickly executing this while at the same time maintaining limited liability.
This is especially true for some industries that require separate companies or specialized articles of incorporation where the law requires that its business lines must be separated in different companies and cannot be carried on in just one company.
Who The One Person Corporation Is Not For
Larger Companies With Multiple Stakeholders/Investors
The very advantage of a one-person corporation in terms of speed, control, and execution, is also its main disadvantage.
More often than not, existing stakeholders or investors will want to have a say in the new venture. This is usually accommodated through a board seat in the company or by controlling some voting shares. This is not possible with a one-person corporation as only one shareholder is allowed.
Raising Capital By Bringing In Additional Equity
If your intention down the line is to raise capital through investors primarily through equity/shareholdings (so that the corporation will not be burdened by debt), then the one-person corporation is not ideal.
Similarly, the very advantage of the one-person corporation is also its disadvantage. If you will be bringing in additional equity investors, this means that they will need to own shares in your corporation which is not possible in a one-person corporation. Yes, you may amend the one-person corporation later on to make it a regular corporation, however, the lead time involved might put off some investors not to mention the additional regulatory steps that have to be taken before these investors can start generating a return on their money.
Industries Where Filipino Ownership Is Required
Business activities where Philippine equity is required under the foreign investments negative list can only be done through a regular Corporation. Again, one-person corporations do not allow for multiple shareholders and so the required Philippine equity cannot be accommodated.
We have a full separate how-to blog article on the foreign investments negative list in this regard and you may access it here.
The bottom line is that a one-person corporation is not for everybody.
To learn more about the details of the one-person corporation, you may access the regulations issued by the Securities and Exchange Commission by clicking here.
When it’s time to make your first local hire, you may read our article on whether it’s best to hire an employee or a consultant instead.
We hope that this overview has been helpful to you.
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About the Author
Atty. Noel C. Ducusin is the senior and founding partner of the N. Ducusin & Partners Law Offices - a law firm based in Metropolitan Manila, Republic of the Philippines that specializes in Corporate Advisory, Cross Border Regulatory Matters, Mergers & Acquisitions, and Commercial Litigation.
Atty. Ducusin is also the President & Sole Director of DoingBusinessPH OPC - a company dedicated to empowering foreign investors to do business in the Philippines through online executive education programs, digital books, seminars, as well as online and offline events.
His mission for this Community is to help foreign investors, business owners, and managers by breaking down complex legal concepts or dense technical material into straightforward actionable legal information for better business decisions.
This is not the place for academic writing and legalese will not be tolerated here. The simpler and the more practical the better.
“Everything should be made as simple as possible, but no simpler.” – Albert Einstein