Closing a Business in the Philippines

Starting, formalizing, legalizing, and registering a business in the Philippines could take time depending
on the type of your company. But if the process of business registration takes time, business closure or
cessation is even more difficult and could take longer time to actually accomplish, depending on the
status of the business.

There are many reasons why a certain business will come to its end. It could be that the business is
already causing the owner significant losses and decided to just stop the business or it could be that the
business needs to be terminated in order to transform into a new type of business. Not all business
closure brings negative news. For example, a single proprietorship business that is transforming into a
corporation is required to be closed as a proprietorship. Thus, business closure could also mean
expansion.

The process of business closure in the Philippines depends on the type of the company to be ceased. For
corporations and partnerships, they should be formally close in the Securities and Exchange Commission
(SEC) where they are also registered, unlike sole proprietorship businesses that are not. There are also
businesses that should comply with the closure requirements of other government agencies, where they
are specially regulated. For example, pawnshops are also required to be closed in Bangko Sentral ng
Pilipinas (BSP), where they are also governed or regulated.

Businesses can also be closed voluntarily or involuntarily. Voluntary closure generally means the business
owner close the business in his or her own will, usually complying with applicable business regulations.
On the other hand, involuntary closure means the business is closed due to events, such as failure to
comply with the law or regulations and the government or court has ordered to close the business. In
this article, we assume that the business owner is voluntarily closing the business.

Usually a business should be closed in the following government agencies/offices.

Department of Trade and Industry (DTI) office

The local City/Municipal Office, where the business is registered

Department of Labor and Employment (DOLE) office, if the company has employees

Bureau of Internal Revenue (BIR) office

Bangko Sentral ng Pilipinas (BSP), if the business is registered with the office

Securities and Exchange Commission (SEC) for partnership and corporation

Other agencies or offices where the business is registered, such as SSS, PHIC and HDMF
To guide you on the formal cessation of your business, here are some of the basic steps, procedures and
requirements on how to close a business in the Philippines.

Closing a business at DTI

According to the DTI, we still have to inform the office when we voluntarily close our business, and apply
for cancellation of our registered business name (BN).

For Sole Proprietor, the following are the requirement for Voluntary Cancellation.

Letter request signed by the owner

Affidavit of cancellation of the registered BN, stating the reason/s for the cancellation and that the
registered owner has no outstanding financial obligation at the time of closure of establishment

Original copy of the BN certificate and the duplicate copy of the application form (affidavit of loss if
either the business name certificate and/or the duplicate copy of the application form was lost)

For Corporation and Partners, the following are the requirements for Voluntary Cancellation.

If dissolved at the Securities and Exchange Commission (SEC),

Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)

Certified photocopy of the SEC certificates of dissolution of the corporation/partnership

Original copy of the business name certificate of registration and the duplicate copy of the application
form. (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application
form was lost)

If BN Registration Only,

a. Corporate Name:

Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
 Board resolution/partnership agreement for the cancellation of the registered business name stating
that the Corporation/Partnership is retiring from business; surrendering the business name certificate for
cancellation and that at the time of closure of establishment the business has no outstanding financial
obligation, or a certified copy of the Certificate of Dissolution (if applicable)

Original copy of the business name certificate and the duplicate copy of the application form (Affidavit
of loss if either the business name certificate and/or the duplicate copy of the application form was lost)

b. Adopted Name:

Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)

Board Resolution/Partnership agreement for the cancellation of the registered business name, stating
the reason/s for the cancellation that the corporation/partnership has no outstanding financial
obligation at the time of closure in connection with the operation of the said business and if there were
creditors copy of notice to them

Original copy of the business name certificate and the duplicate copy of the application form (Affidavit
of loss if either the business name certificate and/or the duplicate copy of the application form was lost)

Closing a business at the local City/Municipal Office

The procedures and requirements on closing a business may vary among different LGUs (Local
Government Units). This means that the requirements for business cessation in Makati City can be
different in Manila or Pasay City. The typical requirements for business closure at the LGUs are the
following:

Affidavit of Gross (reason for and date of closure)

Mayors Permit

Business Plate

Financial Statement/ ITR

Sketch

Latest Payment

Certificate of Closure from the Barangay Captain indicating date of closure

For more complete and accurate procedures and requirements, you may visit and inquire the City or
Municipal Office where your business is registered.

Closing a business at DOLE

If your business has employees or was required to be registered with the DOLE, you also have to ensure
that you notify the DOLE office and comply with the labor requirements to avoid labor relation liabilities.
The following are the basic requirements in closing a business and be cleared at the DOLE office:

Service of a written notice to the employees and the DOLE at least one (1) month before the intended
date of closure/cessation

The closure or cessation of business operations is bona fide in character.

Payment to the employees of termination pay amounting to at least one-half (1/2) month pay for every
year of service, or one (1) month pay whichever is higher, per Philippine Labor Code mandate.

Closing a business at the BIR

The process of business cessation at the BIR is perhaps the most tedious one among others. And if you
have unpaid tax liabilities or delinquencies due to the government, the process could even get more
problematic. Among the government offices, where your business is registered, the BIR is the one which
records and monitors your internal revenue taxes, such as income and business taxes (Value Added Tax
or Percentage Tax). And to formally close and clear your business with the BIR, the bureau has to ensure
that you have already paid all your tax obligations.

BIR Form 1905 (Application for Registration Information Update) is the tax form used in applying for
closure of a business. The following are the requirements and procedures for closure of business at the
BIR.

Documentary Requirements

1) Letter of request stating reason for termination of business

2) Original Certificate of Registration

3) Books of Accounts

4) Inventory List of Unused Receipts and Invoices

5) Unused Receipts and Invoices for cancellation

6) Board Resolution / Notice of Dissolution (if Corporation / Partnership)

Additional Requirements in Case of Death of Individual Taxpayer:

1) Death Certificate

2) Payment of Estate Tax, if any

Procedures

1) Taxpayer applicant files BIR Form 1905, together with the attachments at the RDO where they are
registered within ten (10) days from retirement of business.

2) Taxpayer files short period return for income tax purposes.

3) RDO verifies if taxpayer has open cases reflected in the Integrated Tax System (ITS). If YES, ask taxpayer
to submit required returns and pay the corresponding tax due/s and penalties if any.

4) RDO verifies if taxpayer has delinquent cases at the Assessment, Collection, and Legal Divisions of the
Region;

5) RDO verifies if taxpayer has delinquent cases at the Collection Enforcement Division, BIR National
Office

6) RDO requests for Letter of Authority to investigate internal revenue taxes for all un-audited taxable
years prior to cancellation of business.

7) Assigned Case officer conducts investigations for period/s covered in the issued Letter of Authority.

8) Taxpayer complies with requirements of audit and pays corresponding deficiency taxes resulting from
audit using Form 0605.

9) RDO issues tax clearance for closure of business.

10) RDO updates ITS and cancels TIN of taxpayer (for non-individual taxpayer).

Closing a business at SEC

For corporations and partnerships, they cannot process closure of business with the SEC if they are not
yet done in securing tax clearance from the BIR and endorsements or certificate of registration
cancellation from other government offices, if applicable. Thus, even though the business is already non-
operating, it still remains as a registered business. Though, the business owners, partners, or
shareholders can already start the liquidation process of its assets, subject to applicable taxes.

For corporations, corporate dissolution can be voluntary or involuntary. In this discussion, we assume
that we are voluntarily dissolving a corporation. Moreover, voluntary dissolution of a corporation may
have different procedures, depending on whether the dissolution will affect creditors or not. One way to
voluntarily dissolve a corporation with the SEC is by shortening its corporate term. The following are the
requirements for corporate dissolution by shortening its term.

1. Directors Certificate A Notarized document signed by majority of the directors and corporate
secretary certifying the amendment of the articles of incorporation shortening the corporate term, the
votes of the directors and stockholders thereto, and the date and place of the stockholders meeting

2. Amended Articles of Incorporation

3. Audited financial statements as of date of the stockholders meeting approving dissolution or any date
thereafter

4. List of creditors, if any, and their consent, or certification as to non- existence of creditors

5. BIR Tax Clearance

6. Publishers affidavit of the publication of the dissolution of the corporation (once a week for three (3)
consecutive weeks)

7. Endorsements/clearances from other government agencies, if applicable

Take note that if there are creditors and their consent was not secured, the application should be in the
form of a petition to be filed with Office of General Counsel of the SEC.

Other notes to remember

When closing a business in the Philippines, we have to formally close the business in the government
agencies where it is registered. We have to notify those offices and comply with their requirements to
get a clearance or certificate of termination (cancellation of registration) of our business. Thus, a
business owner has to ensure that his or her business is cleared in every government agency it is
registered aside from the ones discussed above.

For businesses registered and regulated by the Bangko Sentral ng Pilipinas (BSP), such as pawnshops,
money changers, banks, and financing companies, they have to comply with the closure requirements of
the office. For cooperatives, instead of closure at the SEC, it should comply with the CDA (Cooperative
Development Authority) Office for cessation or dissolution.

Furthermore, if your business employs people and is contributing to SSS (Social Security System), PHIC
(Philippine Health Insurance Corporation) and HDMF (Home Development Mutual Fund) for employees
as mandated by our laws, then you also have to apply for cancellation of your business or employers
registration when you close your business to stop your obligation as a contributing employer.