Disini & Disini Law Office

The Philippine business environment is ripe for new investments, but setting up your new business
is not always a walk in the park. There are many documents required in setting up your business, and

INtroduction there are various laws that may regulate the course of your business transactions. This Guide aims to
provide you with an overview of the laws and regulations that will help you launch your business ideas
off the ground, legally speaking.

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Guerilla Guide for Startups
BUSINESS ORGANIZATIONS
As an initial step, you must choose the type of entity through which your business will run. There are
many things to consider such as ease of maintenance, tax treatment, personal liability for debts, ease
in raising capital and others. Here’s a quick walkthrough to help you determine which organizational
structure works best for you.
A. Type
There are different types of business
organizations in the Philippines. The more
common types are sole proprietorships,
partnerships and corporations.
1. Sole proprietorship
A sole proprietorship is a type of business
organization in which an individual personally
owns the business. The sole proprietorship has
no separate legal personality from its owner and
the latter is personally liable for all its debts and
obligations. Registration of sole proprietorships
is with the Department of Trade and
Industry (“DTI”).
2 3
2. Partnership
A partnership is formed when two or more
persons bind themselves to contribute money,
property or industry to a common fund with the
intention of dividing the profits and ownership
among themselves. While the partnership is a
separate legal entity from its partners, the latter
are personally responsible for the debts and
obligations of the partnership. Registration of
partnerships is with the Securities and Exchange
Commission (“SEC”).
3. Corporation
A corporation is owned by several people, called
shareholders, and has a personality separate
1
Kilosbayan, Inc. v. Guingona, 232 SCRA 130 (1994)
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and distinct from them. Shareholders
are responsible for the debts of the
corporation only up to the extent of their
capital contribution. Corporations can
either be stock or non-­stock and are
controlled by the Board of Directors or
Trustees. Registration of corporations is
with the SEC.
There are also joint ventures in which
two or more entities solidarily bind
themselves under a contract to
undertake some commercial enterprise.
Joint ventures require a community
of interest in the performance of the
subject, a right to direct and govern the
policy connected therewith, and the duty,
subject to the agreement of the parties,
to share both in profit and losses.1. The
relationship of the joint venture partners
is generally governed by the terms of
the joint venture contract, supplemented
by the law on partnerships. As a
rule, corporations cannot enter into
partnerships with one another but they
are allowed to enter into joint ventures.
Guerilla Guide for Startups Disini & Disini Law Office

B. Which type is best for my

business?
FOREIGN OWNERSHIP LIMITATIONS
The following are considered For foreign investors to be able to own and
In deciding the type of business organization,
foreign investors: operate a business in the Philippines, certain
the following factors should be taken into
ownership requirements should be met.
consideration:
1. Citizens of a country other than
the Philippines; Under the Foreign Investments Act of 1991
1. The liability of owners for all business
(“FIA”), a foreign investor is generally allowed
debts and obligations;
2. Partnerships or associations not to own 100% of any local business enterprise.
wholly owned by Filipino citizens; However, the Philippine Constitution and certain
2. Tax treatment;
statutes provide some limitations as to the
3. Corporations which are either: extent to which foreigners can own and operate
3. Control and management of the
businesses in the Philippines. Certain industries
business;
a. Organized under Philippine such as mass media,3 retail trade,4 private
laws, of which Filipino citizens securities agencies,5 cockpits,6 manufacture of
4. Ease of raising capital; and
hold less than 60% of the voting firecrackers and other pyrotechnic devices7
shares in the outstanding and the practice of professions are wholly
5. Ease of establishing the business.
capital stock; nationalized and do not admit of any foreign
ownership. The advertising industry admits up to
b. Organized under foreign 30% foreign equity; while public services such as
laws and sanctioned as doing telecommunications and transportation services
business in the Philippines by are allowed to have up to 40% foreign equity.
the Corporation Code, of which While retail is reserved exclusively to Filipinos,
Filipinos own less than 100% of the Retail Trade Liberalization Act permits
the outstanding voting foreign investment under certain conditions.
capital stock. 2

2
Rep. Act No. 7042 (1991) as amended by Rep. Act No. 8179 (2004), The Foreign Investments Act as amended, §3 (a).
3
Except for the recording industry.
4
For enterprises with paid-­up capital of less than US$2.5 million.
5
Rep. Act No. 5487 as amended by P.D. No. 11, The Private Security Agency Law, §4.
6
Pres. Decree No. 449, Cockfighting Law of 1974, §5.
7
Rep. Act No. 7183, An Act Regulating the Sale, Manufacture, Distribution and Use of Firecrackers and Other Pyrotechnic Devices, §5.

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Guerilla Guide for Startups Disini & Disini Law Office

Notably, no foreign ownership restrictions are

imposed on export enterprises where at least
GOVERNMENT INCENTIVES
60% of its output is exported, or on a trader
As a means of encouraging foreign investment in certain key areas of the Philippine economy,
that purchases products domestically and
incentives are extended to those who invest in identified businesses. Two agencies, the Board
exports at least sixty percent (60%) of such
of Investments (“BOI”) and the Philippine Economic Zone Authority (“PEZA”), independently
purchases. In contrast, small businesses that
administer a separate set of incentives for companies registered with them. The incentives
serve the domestic or local market can only
are similar but PEZA-­registered enterprises are required to locate within designated economic
have a maximum of forty percent (40%) foreign
zones (including IT Parks mentioned below), which are managed by PEZA. BOI-­registered
ownership if its paid-­in capital is less
entities are not subject to the same restriction and may locate themselves wherever they see fit.
than US$200,000.

A complete list of the foreign equity limitations

A. Board of Investments Fiscal
on businesses can be found in the Foreign
and Non-­fiscal Incentives
Investment Negative which can be accessed
through the SEC’s website8. Note that when b. Tax credit on raw materials, supplies,
the Constitution or the law places nationality Various incentives are available to qualified and semi-­manufactured products;
restrictions on the ownership of certain businesses through the BOI. A business
businesses, those companies are not allowed enterprise that is validly registered with the c. Additional deduction from taxable
to employ aliens or place them in management BOI shall be entitled to fiscal and non-­fiscal income for labor expense;
positions. At most, the law permits these foreign incentives, which generally include:
investors a proportional representation in the d. Additional deduction from taxable
governing body of the entity, that is, the Board 1. Tax exemptions, credits, and deductions: income for necessary and major
of Directors. Violations of these nationality infrastructure works;
restrictions usually result in criminal penalties a. Income tax holidays (ranging from 4-­6
under the Anti-­Dummy Law. years if located outside of Metro Manila); e. Tax and duty exemptions on imported
capital equipment;

8
http://sec.gov.ph

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Guerilla Guide for Startups
f. Tax credit on domestic capital
equipment;
g. Exemption from contractor’s tax;
h. Tax exemption on importation of
breeding stocks and genetic materials;
i. Tax credit on domestic breeding stocks
and genetic materials; and
j. Exemption from wharfage dues and any
export tax, duty, impost and fee.
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2. Non-­fiscal incentives:
a. Employment of foreign nationals in
supervisory, technical or advisory
positions within the first 5 years;
b. Simplification of customs procedure;
c. Unrestricted use of consigned
equipment; and
d. Access to bonded manufacturing/
trading warehouse system.
B. Philippine Export Zone
Authority
Firms registered with the PEZA and operating
within the designated economic zones managed
by the PEZA are entitled to:
1. A preferential tax rate of 5% on gross income
in lieu of all national and local taxes, after the
lapse of income tax holiday;
2. A deduction from the national government’s
share (3% out of the 5% final tax) of an
amount equivalent to ½ of the value of training
expenses incurred in developing labor or for
management programs; and
3. A tax and duty exemption on importations
of capital equipment, raw materials, and other
merchandise directly needed in its operations.
C. IT Parks
An IT Park is an area, classified as
a special economic zone, which
has been developed into a complex,
capable of providing infrastructure
and other support facilities required
by IT enterprises, including amenities
required by professionals and workers
involved in IT enterprises.
Owners/developers of IT parks located
within Metro Manila are not entitled to
PEZA incentives unless said owners/
developers are already covered by
Presidential Proclamations, or have
secured a PEZA approval prior to the
guidelines. On the other hand, owners/
developers of IT parks located outside
of Metro Manila are entitled to PEZA
incentives, which include:
1. Income tax holiday;
a. Generally, for 4 years; or
Disini & Disini Law Office
b. 6 years when the IT park is located in
less developed areas, as determined in
the Investments Priority Plan.
2. After the lapse of income tax holiday period,
optional special tax of 5% on gross income
earned from enterprises located in the IT park
in lieu of all national and local taxes except
real property taxes;
3. Permanent resident status for foreign
investors with initial investments
of US$150,000.00;
4. Employment of non-­resident aliens
required in the IT operations;
5. Simplified customs procedures; and
6. Option to avail of incentives under the
Build-­Operate-­Transfer Law (this includes
government support for accessing Official
Development Assistance and other
financing sources).
Guerilla Guide for Startups
REGISTRATION OF CORPORATIONS
A. Securities and Exchange
Commission (SEC)
The SEC is the government instrumentality that
exercises jurisdiction and supervision over all
corporations, partnerships, or associations.
In order to acquire juridical personality, the
corporation must first file an application for
registration with the SEC. The details of the
procedure are discussed below.
Articles of Incorporation and By-­Laws
The Articles of Incorporation (“AOI”) is considered
as the corporation’s charter. It identifies the
primary purpose for the corporation’s existence
and indicates the type of corporation (stock
or non-­stock), the names and addresses of
the incorporators, and the names of its board
members and key officers, as well as the
corporate address.
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Application for Registration of Stock b. Draw up the AOI and BL in accordance
with the provisions of the Corporation
h. Buy and register the stock & transfer
book immediately after the issuance of
Corporations Documentary Requirements for Code and by agreement of the Certificate of Incorporation or within
Stock Corporations: the incorporators. 30 days upon issuance thereof.
1. Name Verification Slip; c. If applicable, get indorsements from i. Pay the documentary stamp taxes within
The By-­Laws (“BL”), on the other hand, contains
government agencies. In addition, the five days of the succeeding month from
information on internal rules that govern how
2. Articles of Incorporation and By-­Laws; Company Registration and Monitoring the date of the Certificate of Registration.
the corporation operates, such as the time,
Department (“CRMD”) obtains clearances
place and manner by which meetings of the
3. Treasurer’s Affidavit; from other SEC departments when these
directors or trustees, and the stockholders
are deemed appropriate.
are to be conducted; the quorum required in
4. Written Undertaking to Change
meetings, and the regulations governing the
Corporate Name by any Incorporator or d. Deposit paid-­up capital in the bank.
exercise of the right to vote; the qualifications,
Director; and
duties and compensation of corporate officers;
e. Present 6 sets of accomplished forms
the manner of election of directors/trustees and
5. Clearance from other government and documents for pre-­processing at
officers; penalties for violation of by-­laws; and
agencies, if applicable. the CRMD.
other matters regarding the internal rules of the
corporation. Third parties without knowledge
f. Pay the filing fees.
of the by-­laws are not bound by it.
Procedure:
g. Claim the Certificate/License from the
The AOI and BL are both created by agreement
a. Verify the availability of the proposed Releasing Unit upon presentation of the
of the shareholders of the corporation and are
corporate name and secure a name official receipt for payment of filing fee.
submitted to the SEC for approval.
reservation through the SEC website.
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REGISTRATION WITH LOCAL GOVERNMENT
UNITS AND OTHER AGENCIES
Whether you’ve chosen to be a sole proprietorship, partnership or corporation, you will need to
sign your business up at many government agencies such as the local government unit (“LGU”),
the Social Security System (“SSS”), the BIR and others. What follows is a guide through many of
the typical licenses and permits needed to run a business.
A. Local Government Units
1. Barangay
A barangay clearance is a pre-­requisite for the
issuance of the local government
business permit.
2. City Government or Municipal Government
All businesses are required to register their
business with the City Government or the
Municipal Government. Unfortunately, the
procedure for the registration may differ
depending on the city or municipality concerned.
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Additional Requirements for New Businesses:
3. Copy of Mayor’s Business Permit or
duly received application for Mayor’s
3. Final and Clear Sample of Principal
and Supplementary Receipts/Invoices
a. DTI Registration (Sole Proprietorships)
b. SEC Registration (Partnerships
permit, if the former is still in process
with the LGU
and Corporations) 4. Other documents, if applicable: For the registration of the Books of Accounts
a. Contract of Lease Documentary Requirements:
b. Certificate of Authority of
B. Bureau of Internal Revenue Barangay for Micro Business New set of books of accounts
(BIR) Enterprise Procedure:
c. Franchise Agreement
The corporation is required to register with the d. License to do Business in the a. Accomplish BIR Form 1903 and
BIR for the issuance of the TIN as well as the Philippines, in case of resident submit the same together with the
Below is a list of the general requirements issuance of the Authority to Print (for receipts) foreign corporation documentary requirements to
needed to secure a Business/Mayor’s permit. and the registration of the new set of the books e. Proof of registration/Permit to the Revenue District Office (“RDO”)
of accounts that the corporation will be using. Operate with BOI, Subic Bay having jurisdiction over the place
Requirements: Metropolitan Authority where the head office and branch,
BIR Procedure: Application of Tax Identification (“SBMA”), Philippine Bases respectively.
a. Barangay Clearance Number (TIN), Authority to Print (ATP) and Conversion and Development b. Pay the Annual Registration Fee
b. Community Tax Certificate with Gross Registration of Books of Accounts Authority (“BCDA”), PEZA. (P500.00) at the Authorized Agent
Receipt Banks (AABs) of the concerned RDO.
c. Financial Statement (Partnerships and Issuance of TIN 9
c. Pay Documentary Stamp Tax (DST)
Corporations) Documentary Requirements: For new application of ATP (loose DST / BIR Form 2000* for DST
d. BIR Clearance Documentary Requirements: on Contract of Lease, etc.). Present
e. SSS Clearance 1. Accomplished BIR Form 1903 proofs of payment.
2. Copy of SEC Registration and Articles 1. BIR Form 1906 d. Submit requirements for ATP and
of Incorporation 2. Job Order registration of books of accounts.
9
Bureau of Internal Revenue, Application for Tax Identification Number (TIN), available at http://www.bir.gov.ph/index.php/registration-requirements/primary-registration/application-for-tin.html#corporations ( last accessed , Mar. 11, 2015).
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e. Attend the taxpayer’s initial briefing to
be conducted by the RDO concerned
for new registrants in order to
apprise them of their rights and
duties/responsibilities.
f. The RDO shall then issue the the corporation as an employer, and register
Certificate of Registration (Form 2303)
together with the “Ask for Receipt”
notice, Authority to Print and Books
of Accounts.
Note:
1. Corporations shall accomplish and file the application
on or before the commencement of the business, or within
30 calendar days from the issuance of the Mayor’s Permit/
Professional Tax Receipt (“PTR”) by the LGU or Certificate
of Registration issued by the SEC whichever comes earlier.
2. Where DST is required to be paid within 5 days after the
close of the month, BIR registration shall be done on or
before payment of DST becomes due.
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C. Other Government Mandated
Benefits
RUNNING A CORPORATION
A. GOVERNANCE
Since the corporation will be hiring workers or
employees, it is required under the law to register Board of Directors (BoD)
its employees, with the Social Security System, The BoD decides all questions pertaining to
Home Mutual Development Fund and Philippine the corporate business and the administration
Health Insurance Corporation. of corporate property. In the exercise of its
corporate powers, all acts of the corporation are
done through the BoD, except for cases where
the approval of the shareholders is required.
The BoD exercises these powers upon the
majority vote of its members at meetings held
to discuss corporate business. The Chairman
of the BoD presides over the meeting while the
Corporate Secretary records the proceedings.
BoD decisions are embodied in so-­called Board
Resolutions, which are contained in written
minutes of all BoD meetings and kept by
Corporate Secretary.
It is typical for the latter to issue Secretary’s
Certificates or attestations concerning the
existence of particular Board Resolutions (such
as those authorizing the taking of any corporate
action, e.g., opening of bank accounts, entry
10
CORP. CODE § 39.
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into contracts, etc. ). As a rule, all corporate
actions must be approved by the BoD and
evidenced by a Board Resolution.
The compensation of the Directors may be fixed
in the By-­Laws. In case no such provision exists,
the directors shall not receive any compensation
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except for reasonable per diems.
Shareholders and their Rights
Shareholders are owners of the shares of stock
of the corporation. They are given certain rights
that affect the governance of the corporation.
Primarily, the shareholders elect the members
of the BoD. However shareholders also play a
role in decision-­making for matters fundamental
to the existence of the corporation (such as the
amendment of the AOI and BL, the extending or
shortening of the corporate term, the increase or
decrease of capital stocks, among others).
In addition to such rights, the shareholders also
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possess an “appraisal right” which allows a B. Special Considerations for
dissenting shareholder to demand payment of Startups
the fair value of his shares in certain cases where
there is a substantial change in the corporation’s Kinds of Shares of Stock:
nature and capacity to carry out business. Preferred vs. Common
The shareholder also has a “pre-­emptive right”
which generally allows him to subscribe to a There are many different types of shares in
subsequent issuance of shares in proportion to a corporation. The two usual types11 are the
their respective shareholdings. common shares and the preferred shares.
The preferred shares are those that are given
preference in the distribution of the dividends
Officers of the Corporation and their Functions in case of liquidation of the corporation.12 In
exchange for such privileges, preferred shares
The Corporation Code prescribes at least are not given the right to vote for directors—a
3 officers of the corporation namely: 1) the right available only to holders of common shares.
President 2) Treasurer and 3) Corporate
Secretary. It also prescribes the specific
qualifications for such officers. Additional Financing a Corporation:
corporate officers may be created and their Debt and Equity Infusion
duties and qualifications may be provided
in the BL. A corporation raises funds chiefly through a
mix of debt and equity financing. Debt financing
involves taking out loans, usually from a bank,
in order to finance a business. This allows
the incorporators to maintain control of the
corporation, while at the same time be able
to use the loan as an expense that can be a
deduction against the company’s tax liability.
Moreover, debt financing allows for a capital
infusion without having to share any net income
of the corporation. The maximum return for the
lender is the interest rate set in the
debt instrument.
On the other hand, equity financing involves
selling shares of the corporation to interested
investors. This allows the corporation some
breathing room during the start-­up stage as no
obligations or interest will be due. It also allows
the investors to bring their business expertise
to the corporation. Equity financing is more
attractive to an investor because the maximum
loss would be the amount invested while the
gain involves a share in the corporation’s future
income and the appreciation of the share value
as the corporation grows. From the founder’s
standpoint, equity financing might be easier to
get but it involves losing some control over the
management of the business. In that sense, debt
financing is attractive but unless the business
has income to pay for interest expense, it may
not even be an option.
C. SEC Reportorial Annual Financial Statements (AFS)
Requirements
If the stock corporation has a paid-­up capital of
Among the responsibilities of corporations PhP 50,000.00 or more, the AFS shall be audited
registered with the SEC is the annual submission by an independent certified public accountant
of the General Information Sheet and Audited registered with the Board of Accountancy. In
Financial Statement. This
is a requirement that case the amount of the paid-­up capital is less
should be complied with promptly and accurately than PhP 50,000.00, the AFS shall at least be
because late filing and/or non-filing carries with certified under oath by the Treasurer of the
them penalties ranging from fines to revocation corporation. It should be submitted within 120
of the
corporate license.13 calendar days after the end of each fiscal year, as
indicated in the Financial Statements (FS).
General Information Sheet (GIS) In addition to the hard copies of the GIS and
AFS, corporations with Gross Sales/Revenue of
The GIS should be certified and sworn to by the at least PhP 5 million shall submit a diskette/
Corporate Secretary. It should be filed within 30 compact disk (“CD”) containing an electronic
days from the date of the annual SH meeting or file/soft copy of the GIS or the FS template as
members’ meeting. If the corporation is not in provided by the SEC. The GIS diskette/CD(s)
operation, it should submit an Affidavit shall be accompanied by a Certification under
of Non-­Operation. oath by the Corporate Secretary, stating that
it contains the exact data stated in the hard
copies.14 On the other hand, the diskette/CD for
the FS template(s) shall be accompanied by a
Certification under oath by the Treasurer that it
contains the same basic or material data in the
hard copies of the AFS.

11 13
Other types include: treasury shares, redeemable shares, etc. Securities and Exchange Commission, Consolidated Scale of Fines , Sec.gov.ph, available at http://www.sec.gov.ph/accountantsinfo/others/CONSOLIDATED%20SCALE%20OF%20FINES%20
12
They may also be given other preferences under the Articles of Incorporation;; See CORP. CODE , § 6. 05%20Nov%202013%20(26%20Nov%202013).pdf (last accessed, Mar.10, 2015).
14
Securities and Exchange Commission, SEC Reportorial and Monitoring Requirements for Domestic Corporations , Sec.gov.ph, available at http://www.sec.gov.ph/gsr/primary/pdf/reportori-
al%20requirements%20for%20DS.pdf (last accessed, Mar. 10, 2015).
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CONTRact Basics LABOR LAW BASICS

Generally, contracts do not require a specific form under Philippine law. They may be verbal
or written as long as there is an agreement (or a “meeting of the minds”) between the persons
entering into a contract. Contracts are evidenced by an offer and an acceptance. When valid,
a contract is considered as the law between the parties. In some cases, certain (unperformed)
contracts must be in writing to be completely valid, such as: the sale of goods valued at above
PhP 500.00 and the sale of land.
If the consent of either party to a contract has
been impaired either through fraud, force,
accident or mistake, the innocent party can
have the contract annulled or declared void. This
includes contracts entered into by minors and
those who are victims of misrepresentations.
Illegal contracts such as those which are
contrary to law, morals or public policy are void
and have no effect whatsoever. Note that if both
parties knowingly entered into a void contract,
the courts will refuse to take any action to annul
or reverse the effects of the contract. Under the
in pari delicto rule, the court will leave the parties
as they are (without any relief) as a penalty for
entering into a void contract.
If a contractual obligation is breached or not
performed, the non-­defaulting party is entitled to
sue for specific or substituted performance with
damages in either case. Specific performance
is available only in certain instances where the
courts are allowed to compel a party to perform
a specific act such as the delivery of a specific
thing. Substituted performance means the
obligation will be performed by a third party at
the expense of the defaulting party. In addition,
for reciprocal obligations, the non-­defaulting
party can seek the rescission (or resolution) of
the contract including damages.
Labor law in the Philippines is largely made up of social justice measures in which the State
seeks to provide legal advantages to those who have little or no power in their economic
relationships. Philippine labor law is premised on the notion that the employee needs the
assistance of the law to equalize his standing with that of his more powerful employer. As such,
mechanisms to protect labor are enshrined in the Constitution such as the right to self-­organize
and create unions. Another important right is security of tenure, which insulates the employee
against the whims of his employer by requiring the latter to provide a substantive reason for
terminating the employment and the observance of a procedure designed to protect the rights
of the employee.
A. Type of employees
a. Social security (SSS);
1. Regular b. Pag-­IBIG;
c. PhilHealth;
Typically, regular employees are those who are d. 13th month pay;
entitled to benefits provided by law, e. Holiday pay;
such as: f. Overtime pay;
g. Vacation leave;
h. Maternal or paternity leave; and
i. Parental leave for solo parents.

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It is commonly believed that all employees must
serve at least six months before they become
regular. This is untrue. Under the Labor Code, so
long as an employee performs any function that
is necessary and desirable in the ordinary course
of business, then such employee is deemed
regular regardless of the term of his service.
The only way to prevent such an employee from
becoming regular on his first day would be to hire
him on a probationary basis
(more details below).
Regular employees enjoy security of tenure.
Hence, their employment may only be terminated
for just causes or authorized causes set out in
the law. In addition, regular employees enjoy
procedural due process, where the employee
must be informed of the grounds for termination
and be given the opportunity to present his
defense or evidence. Thereafter, the employee
must be notified of the employer’s decision to
terminate his services. This is also referred to
as the “two-­notice rule” where the employer
must send a first notice to the erring employee
composed of the formal charge and the
opportunity to defend himself. The second notice
is the notice of termination.
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2. Probationary
Probationary employees are those hired for
a trial (or probationary) period during which
the employee must demonstrate the ability to
perform the job for which he has been hired.
Upon doing so, at the end of the probationary
period, the employee becomes a regular
employee. Under the law, a probationary period
must not exceed six (6) months and at the start
of the this period, the employer must inform
the employee of the standard by which his
performance will be evaluated. If any of these
requirements are not met, then the probationary
employment is void and the employee is deemed
regular from day one. It is advisable therefore to
properly document the probationary employment
to ensure that all legal requirements have
been met.
It is important to remember that probationary
employees also enjoy security of tenure during
the probationary period and the employment
may not be terminated without a substantive
reason and compliance with the aforementioned
two-notice rule.
3. Contractual Employees
On the other hand, contractual employees
are employees whose period and condition of
employment are dependent on the provisions of
their contract. The Labor Code does not explicitly
permit contractual or fixed-­term employment
but the courts have ruled that so long as the
term in the contract is not used to pre-­emptively
end the employment and deny the employee’s
security of tenure, then it is valid. Despite the
rulings, however, it is advisable to use fixed-­term
employment for employees other than rank-­and-­
file. Finally, it should be noted that fixed-­term
employees enjoy the right to security of tenure
while the contract is in effect.
4. Seasonal and Project Employees
Seasonal employees are employed for seasonal
work. Project employees are called to work only
for the accomplishment of a particular project.
The period of employment is co-­terminus with
the season or the project, as the case may be. In
both cases, the employment is for a temporary
(although not necessarily fixed) period at the
end of which, the employee ceases to
work for the employer. For open-­ended
engagements related to a particular
project, a project employment might
be appropriate rather than a fixed-­term
contract simply because projects may
be pre-­terminated or extended beyond
the period originally contemplated.
Finally, during the seasonal or project
employment, the employee enjoys
security of tenure and may not be
terminated without cause.
B. Subcontractor or
Independent Contractor
Hiring a subcontractor is an easy way
to add manpower resources for any
business. However, the Labor Code
provides that those subcontractors who
do not comply with the requirements of
the law may create unwanted employer-­
employee relationships. Hence, the
employees of the non-­conforming
subcontractor will be deemed the
employees of the client. This creates a
Disini & Disini Law Office
risk whereby a company hiring a subcontractor 4. The subcontractor has substantial
will become liable as a direct employer of the capital or investment; and
subcontractor’s employees. Such liability extends
to the payment of wages, observance of all 5. The agreement between the parties
labor standards, and payment of government-­ assures the contractual employees of
mandated benefits like SSS and Pag-­Ibig. entitlement to all safety and health
standards, the right to self-­organize,
the right to security or tenure and social
To avoid this risk, a start-­up should only hire and welfare benefits.
independent contractors who conform to the
following requirements:
It should be noted that in many instances,
1. The subcontractor carries on body shopping does not conform to the above
a business which is distinct and requirements and therefore the resources
independent from its client; deployed to your workplace might be deemed
regular employees who are legally entitled to be
2. The subcontractor undertakes to treated in the same way.
perform the tasks or service on its own
account and under its own responsibility;
3. The service is rendered according to
the subcontractor’s manner and
method – free from the control and
direction of the client ( e.g., the
start-­up) in all matters connected with
the performance of the work except
as to the results;
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Guerilla Guide for Startups
Taxation Basics
A. Income Tax
1. Sole Proprietorship
The income of a sole proprietorship is included
in the individual owner’s gross income, with the
business expenses considered as part of the
allowable deductions. In other words, the Sole
Proprietorship does not file a separate income
tax return from that filed by its owner. The
graduated rate of 5% to 32% depending on the
amount of taxable income is used.
2. Partnership
Partnerships and joint ventures are generally
taxed as corporations. They file their own income
tax returns separate from the partners.
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3. Corporation
The normal corporate income tax (NCIT) rate
for domestic corporations is 30% of the taxable
income. The taxable income is the gross income
less allowable deductions such as cost of goods
and salaries.
Minimum Corporate Income Tax (MCIT)
If there is no taxable income, the corporation is still
required to pay the minimum corporate income tax
of 2% of the gross income.
B. Other types of tax
1. Value Added Tax (VAT)
The 12% VAT applies to:
a. All persons who sell, barter, exchange,
or lease goods or properties or render
services in the course of trade or
business whose annual gross sales or
receipts exceed PhP 1,919,500; and
b. Those who import goods.
VAT registered enterprises collect (or pass
on) VAT from their customers (called output
VAT) and pay VAT to its suppliers of goods and
services (referred to as input VAT). The law
requires the remittance of the difference between
output and input VAT. So, if a business makes
gross sales of PhP 300 million, then the output
VAT is PhP 36 million. If the total input VAT
paid to suppliers total PhP 20 million, then the
taxpayer must remit PhP 16 million VAT to
the government.
2. Percentage Tax
Percentage Tax is a business tax imposed on
persons or entities who sell or lease goods,
properties or services in the course of trade
or business whose gross annual sales and/or
receipts do not exceed PhP 1.92 million and who
are not VAT-­registered.
3. Excise Tax
Excise taxes are taxes imposed on the
production, sale or consumption of a commodity.
Types:
a. Specific Tax – excise tax based on
weight or volume capacity or any other
physical unit of measurement.
b. Ad Valorem Tax – excise tax based on
selling price or other specified value of
good or articles.
Disini & Disini Law Office
4. Documentary Stamp Tax (DST)
DST is a tax on documents, instruments,
loan agreements and papers evidencing the
acceptance, assignment, sale or transfer
of an obligation, right or property incident
thereto. The amount of the DST will depend
upon the document, instrument, agreement or
papers subject of the tax. Failure to pay DST
on the required documents can result to the
inadmissibility of such document in court for
legal purposes, among others.
5. Real Property Tax
Real Property Tax is imposed by the local
government on the ownership and use of land,
buildings, machinery and other improvements
not specifically exempted by law.
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Guerilla Guide for Startups
6. Local Business Tax
Local Business Tax is a tax imposed by the local
government on businesses operating within the
local government unit. Typically, the tax is based
on the gross sales of the business the year
before the tax is collected.
7. Income Tax for Employees
An employer is required to withhold the taxes
of its employees on a monthly basis. For the
computation of withholding tax, the BIR has
provided a tax table. Minimum wage earners are
exempted from the withholding tax.
Fringe benefits Tax
A fringe benefit is any good, service or other benefit
granted in cash or kind by an employer to a managerial or
supervisory employee. This is taxed by 32% of the grossed
up monetary value of the benefit but such tax is deductible
from the employer’s gross income.
De Minimis Benefits
These are benefits of relatively small value (such as
medical assistance of PhP 10,000 and below) given by the
employer to promote health and goodwill of the employees.
These are not taxed but are also not deductible from the
employer’s gross income.
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Disini & Disini Law Office
C. Reportorial Requirements
Intellectual Property Law Basics
Every registered withholding agent on
compensation is required to file a Monthly A. TYPES
Remittance Return of Income Taxes Withheld
on Compensation (BIR Form 1601-­C).
1. Patent b. Schemes, rules and methods of
performing mental acts, playing games
Sole proprietors must file their income tax as
A patent is an exclusive right granted by the or doing business, and programs for
individuals on or before April 15 of each year.
Patent Office to use, manufacture, sell and computers;
license the use of an invention. c. Methods for treatment of the human
All corporations are required to file a quarterly
or animal body by surgery or therapy
income tax return on a cumulative basis for the
For an invention to be patentable, the and diagnostic methods practiced
preceding quarters and a final or adjustment
Intellectual Property Code (“IPC”) provides that: on the human or animal body. This
return, on or before April 15. Taxes must be paid
provision shall not apply to products
upon filing of the tax declaration.
a. it must be a technical solution of a and composition for use in any of these
problem in any field of human activity; methods;
Corporations must also file Monthly VAT
b. it must be new; d. Plant varieties or animal breeds or
Declarations (BIR Form 2550M) no later than the
c. it must involve an inventive step; and essentially biological process for the
20th day following the close of the month. They
d. it must be industrially applicable. production of plants or animals. This
are also required to file a Quarterly VAT Return
provision shall not apply to micro-­
(BIR Form 2550Q) not later than the 25th day
Inventions that are not patentable: organisms and non-­biological and
following the close of the taxable quarter.
microbiological processes;
a. Discoveries, scientific theories and e. Aesthetic creations; and
mathematical methods; f. Anything which is contrary to public order
or morality.
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Guerilla Guide for Startups
An invention shall not be considered new if it
forms part of “prior art,” which refers to that body
of information publicly available prior to the time
the patent application was filed.
Protection
A patent is valid for 20 years from the date the application
is filed. During the 20 years, the holder of the patent can
restrain, prohibit and prevent any unauthorized person from
making, using, offering for sale, selling or importing such
product or, in case of a process, from using such process
and manufacturing, selling or importing any product made
from such process.
Application Procedure
To patent an invention, a request form accompanied with
drawings, abstract and priority date must be filed with
the Intellectual Property Office. In case an application is
denied, the applicant may still appeal.
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2. Trademark/Service Mark 3. Copyright
A trade/service mark is any visible sign capable The works covered by the copyright law are
of distinguishing the goods (trademark) or generally creative works such as :
services (service mark) of an enterprise and shall
include a stamped or marked container of goods. a. Books, pamphlets, articles and other
The IPC has a list of marks that may not writings;
be registered, such as those consisting of b. Periodicals and newspapers;
immoral matter, or those identical or c. Lectures, sermons, addresses,
confusingly similar with a registered mark. dissertations prepared for oral delivery,
whether or not reduced in writing or
other material form;
Protection
d. Letters;
A registered owner of a mark has the exclusive right to use
the mark and prevent others from using it or similar marks e. Dramatic or dramatico-­musical
in identical or related goods and services for a period of 10 compositions; choreographic works or
years renewable every 10 years. entertainment in dumb shows;
f. Musical compositions, with or without
Application
Same procedure as in the case of patents. words;
g. Works of drawing, painting, architecture,
sculpture, engraving, lithography or
other works of art; models or designs for
works of art;
h. Original ornamental designs or models
for articles of manufacture, whether or
not registrable as an industrial design,
and other works of applied art;
i. Illustrations, maps, plans,
sketches, charts and three-­
dimensional works relative
to geography, topography,
architecture or science;
j. Drawings or plastic works of a
scientific or technical character;
k. Photographic works including
works produced by a process
analogous to photography;
lantern slides;
l. Audiovisual works and
cinematographic works and
works produced by a process
analogous to cinematography or
any process for making audio-­
visual recordings;
m. Pictorial illustrations and
advertisements;
n. Computer programs; and
o. Other literary, scholarly, scientific
and artistic works.
The IPC also added derivative works to works
that are protected by copyright. These are
protected as new works without affecting the
right of any subsisting copyright upon the
original works.
Works NOT covered by copyright:
a. Unprotected Subject Matter
i. Idea;
ii. Procedure;
iii. System;
iv. Method or operation;
v. Concept;
vi. Principle;
vii. Discovery;
viii. Mere data;
ix. News of the day and other
miscellaneous facts having the
character of mere items of press
information; and
x. Any official text of a legislative,
administrative or legal nature, as well as
any official translation thereof.
b. Works of the Government
Disini & Disini Law Office
Protection
Copyright shall consist of the exclusive right, for a period
of 50 years after the death of the author, to carry out,
authorize or prevent the following acts:
a. Reproduction of the work or substantial portion
of the work;
b. Dramatization, translation, adaptation,
abridgment, arrangement or other transformation
of the work;
c. The first public distribution of the original and
each copy of the work by sale or other forms of
transfer of ownership;
d. Rental of the original or a copy of an audiovisual
or cinematographic work, a work embodied
in a sound recording, a computer program, a
compilation of data and other materials or a
musical work in graphic form, irrespective of the
ownership of the original or the copy which is the
subject of the rental;
e. Public display of the original or a copy of the
work;
f. Public performance of the work; and
g. Other communication to the public of the work.
Procedure
There is no need to register the work since copyright
protection will begin from the moment of creation.
However, the author, his assigns or heirs, may register it by
filing a Registration and Deposit Form with any Intellectual
Property Satellite Office together with the
following documents:
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Guerilla Guide for Startups
a. Affidavit evidencing ownership of the copyright or
manner of its acquisition;
b. Document evidencing identity of applicant;
c. Document evidencing authority to represent (if
the applicant is a representative); and
d. Official Receipt of the filing fee, and the work
to be deposited.
4. Trade Secrets
A trade secret is any formula, pattern, device, or
compilation of information that is used in one’s
business and gives the owner an opportunity to
obtain an advantage over competitors who do
not possess the same information. Generally, a
trade secret is a process or device intended for
continuous use in the operation of the business.
It can be a price list, catalogue or specialized
customer list.
Protection
An employer can get an injunction to prevent the disclosure
of a trade secret and file a case for damages against the
person who made the unauthorized disclosure of
the information.
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B. Protecting your Intellectual
Property
Non-­disclosure Agreement (NDA)
An NDA is a contract that contains conditions
in relation to use and disclosure of confidential
information to any person or the public. This
is important in cases of intellectual properties
that are not yet registered with the IPO because
the protection given to undisclosed information
cannot be obtained anymore if the information
has become part of the public domain.
Employee Rights to IP
Absent any agreement between the parties, the
employer will own the intellectual property of
the employee if the work is commissioned or
produced as part of the regular duties of the
employee. To ensure that the employer will own
the intellectual property right, this should be
tackled in the employment agreement.
Disini & Disini Law Office
C. Intellectual Property
Related considerations
for startups
Open Source Licenses
Open source software is software in which
the source code is made freely available for
the public to use, change, develop and add
amendments. Open source licensing ensures
ready use of protected technologies, creating a
The law governing data privacy in the Philippines is the Data Privacy Act of 2012 (DPA), which provides
pool of core enabling technologies that are free
Privacy Law
for the rights and obligations of the person whose personal information is processed, known as the
for licensees to use as long as improvements to
“data subject.” As a rule, the data subject has the right to allow or restrict the collection, sharing,
the core technology are also shared publicly.
Basics distribution and use of his personal information. The National Privacy Commission suspends
compliance by businesses with the law until the issuance of the Implementing Rules and Regulations.
As of this writing, the Commission has not yet been organized.
Software Patent Issue
Philippine laws governing patents do not grant
patents for computer software. It is subsumed
under the copyright law. However, under certain
circumstances, technology patents may be
registered in the Philippines.
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Guerilla Guide for Startups Disini & Disini Law Office

Going Public 2. Operating history of the corporation

3 years prior to its listing;
5. When required by PSE, the corporation
shall engage the services of an
a. Corporation information
b. Corporation news
independent appraiser accredited by the c. Financial report
One option available to a corporation that seeks to increase its capital is by selling its shares of
3. All subscribed shares of the same type SEC to determine the value of its assets; d. Disclosures
stock to the public. The SEC regulates these transactions. It is important to note that the mere
and class applied for shall be paid in full; e. Investor FAQs
registration of the Corporation before the SEC for incorporation purposes does not include a
6. The Corporation shall have an investor f. Investor Contact
license to sell its shares to the public.
4. Minimum offering to the public for initial relation program. Such program shall g. Stock Information
listing are as follows: include, at the minimum, a corporate
A corporation must first apply for a license with the SEC in order to trade stocks publicly. Once
website which contains, the
the SEC grants a license, a corporation that seeks to be listed in the Philippine Stock Exchange
following information:
(“PSE”) must then comply with the criteria set by the PSE.

A. Criteria for Being

Listed in the Philippine
Stock Exchange
15

Since 2013, the Philippine Stock Exchange
(“PSE”) has been operating a system that
consists of two boards: the Main board and
the Small Medium and Emerging (SME)
Board. Generally, the boards are distinguished
by its minimum capitalization requirement.
Corporations listed under the main board are
required to have an authorized capital stock
of at least PhP 500 million, while corporations
that seek to be listed on the SME Board are
required to have an authorized capital stock of
at least PhP 100 million, at least 25% of which
is subscribed and fully paid. The two boards are
also distinguished by more specific criteria as
discussed below.
1. General Criteria (Applicable to Both Boards)
1. Positive Stockholder’s Equity in the fiscal
year immediately preceding the filing of
its application;

15
Philippine Stock Exchange Inc, General Criteria , available at http://www.pse.com.ph/stockMarket/content.html?sec=LISTING_HEADER (last accessed Mar. 11, 2015).

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Guerilla Guide for Startups Disini & Disini Law Office

2. Specific Criteria

NOTE:

MAIN BOARD
In case there is an issuance/transfer within 180
days prior to the offering period and transaction
price is lower, all shares shall be subject to a lock
up period of 365 days.

This lock-­u p shall be stated in the AOI

of the applicant.

SME BOARD
In case there is an issuance/transfer within 6
months prior to the start of the offering and
transaction price is lower, all shares shall be
subject to a lock up period of 1 year.

This lock-­u p shall be stated in the AOI

of the applicant.

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Guerilla Guide for Startups

B. Advantages of
Going Public

Getting a corporation publicly listed is a good

way to raise capital for the company. In 2014,
the initial public offering (“IPO”) of the technology
firm, Xurpas Inc., raised about PhP 1.36 Billion
for the company when it sold about 1/5 of its
stocks to the public. It was reported that by the
time the public offering started, the offering was
oversubscribed by 6.5 times the offer price.16
Xurpas Inc.’s share price has since more than
doubled its IPO price.
For more information on the legal aspects of your startup,
you may contact JJ Disini at jj@disini.ph,
Another advantage of having a corporation’s or Owens Disini at owens@disini.ph

shares public listed is the beneficial rate of

stock transaction tax (0.5% of the gross selling
price), as opposed to 5-­10% rate of capital
gains tax imposed on shares not listed with the
Philippine Stock Exchange. Listing is also used
by companies to boost public awareness and
interest for a company and its products.

320 PSSC Center, Commonwealth Avenue, Diliman,

Quezon City, 1101 Philippines

Tel. Nos. +63 2 454 5442

16
Philippine Daily Inquirer, Tech Firm Sizzles on Trade Debut, Inquirer.net, Dec. 3, 2014,available at http://business.inquirer.net/182934/tech-­firm-­sizzles-­on-­trade-­debut . +63 2 426 0486
Mobile +63 939 915 7690
Web www.disini.ph
Email info@disini.ph
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