9 Things You Have to Know About Legalizing Your Business http://www.investorjuan.com/2010/08/9-things-you-have-to-know-about.html This series is based on the presentation of J.

Sedfrey S. Santiago, Esq. of the John Gokongwei School of Management, Ateneo de Manila University on July 28, 2010 1. Why is it important to "legalize" your business? A lot of entrepreneurs who put up their businesses for the first time often choose to forgo the entire business registration process and instead become part of the underground or "gray" economy. These individuals choose not to register their businesses mainly because of the following reasons: They want to avoid paying business fees and taxes They find the entire process too complicated and cumbersome They simply don't know how to do it While all of these reasons are practical and understandable, the benefits of legalizing your business significantly outweigh the costs in the long run; proper registration is actually essential for the sustainable, future growth of your business. For example, as your business grows and gets bigger accounts, you'll find that some of your customers will want a receipt. Business registration also provides you with access to financing sources like bank loans and securities markets that would be unavailable to unregistered business. Finally, legalizing your business greatly enhances its reputation and credibility, which can lead to more opportunities for increased profitability and growth. 2. What are the different ways of organizing a business? An entrepreneur or a group of entrepreneurs can choose from among three ways of organizing a business: sole proprietorship, partnership, and corporation. A side by side comparison of the three types of business entities is presented below.

A sole proprietorship is best for a small business that is managed by an individual owner. Meanwhile, groups of investors can choose to form a partnership instead; firms that provide professional services like accounting, law, engineering, and architecture are almost always organized as partnerships. Finally, bigger businesses may choose to be organized as corporations. The primary benefit of organizing your business as a corporation is you as one of the owners enjoy limited liability: this means if the business is unable to fully pay its financial obligations to creditors, these creditors cannot go after your personal property, unlike in sole proprietorships and partnerships. The downside in organizing a corporation is that owners are taxed twice: first, the firm's income is taxed on a corporate level; then, when dividends are paid to the owners of the firm, taxes are again applied on a personal level. 3. What is the general procedure for registering a business? After choosing the appropriate mode of organization for your business, you now go through the business registration process, which consists of the following general steps: Obtain o Department of Trade and Industry (DTI) registration if you choose to organize your business as a sole proprietorship o Securities and Exchange Commission (SEC) registration for partnerships or corporations Get a barangay clearance Secure a mayors permit Register with the Bureau of Internal Revenue (BIR) to get your business' Tax Identification Number (TIN)

4. How do you register your sole proprietorship business with the DTI? Think of a unique name for your business. It has to be significantly different from the names of existing businesses registered with the DTI. You can use DTI's online Business Name Registration Service to check the availability of the business name you have chosen. Go to any DTI satellite office (there's one within the Quezon City Hall complex, just ask around for directions), get and fill up the application form, and have your business name checked and approved. You can actually skip this and go straight to the main office to have you business name checked, but in my experience going to the satellite office actually saved me time since the queue for business name approval is shorter. Go to the nearest DTI office (for Quezon City residents, the nearest one is at Highway 54 Plaza along EDSA in front of SM Megamall) and submit your approved application form (if you skipped the satellite office, you will have to fill up the application form and business name approval here). You should get your DTI registration certificate after about an hour or so. The DTI registration certificate is valid for five years.

5. How do you register your partnership or corporation with the SEC? Here are the steps in registering your business with the SEC. Verify and reserve a proposed name for your business with the Name Verification Unit (at the SEC Annex to the left of the main building) or do it online through i-Register. You can submit up to 3 business names for verification. Proposed names must not be: identical or deceptively or confusingly similar to any existing corporation or any other name already protected by law patently deceptive confusing contrary to existing laws Draw up the Articles of Incorporation and By-laws in accordance with theCorporation Code of the Philippines. You don't have to draft these documents from scratch: ready forms are available from the SECs Company Registration and Monitoring Department (CRMD), also at the SEC Annex.

If required, get endorsements from other government agencies. For example, in the case of banks, pawnshops and other financial intermediaries with quasi-banking functions, a Bangko Sentral ng Pilipinas (BSP) endorsement is required. In addition, the CRMD obtains clearances from other SEC departments whenever these are deemed appropriate. Deposit the required paid-up capital in a bank. The minimum requirement is 5,000 pesos, but there is no minimum or maximum authorized capital stock and you can freely define the par value of one share of your authorized capital. The deposit must be certified by the bank manager. Present six sets of the required forms and documents for pre-processing at the CRMD. Only complete application documents are accepted for processing. Pay the filing fees to Cashier. Claim the Certificate of Incorporation from the Releasing Unit, Records Division upon presentation of the official receipt issued for payment of the filing fee.

6. How do you get a Barangay Clearance for your business? The next thing you have to do is secure a Barangay Clearance for your business, which is one of the requirement's in getting a business permit. Submit a filled-up application form.

Present the certificate of title of the business premises if it is owned by the business, or the contract of lease if it is rented. Pay the clearance fee (around 500 pesos, but it depends on the city/town/municipality) The Barangay Clearance may often be issued the following day.

7. How do you get a business permit from your local (city) government? If you're thinking of setting up shop in Quezon City, then you're in luck. The local government has just introduced the BOSS (Business One Stop Shop) business registration system: whereas the old system and those used by other local governments often involve around 12 steps that take at least 18 days, BOSS has been simplified into 3 steps that can take as short as 24 hours. The new system also involves less paperwork, less visits to a fewer number of offices, and a greatly reduced number of interactions between the applicant and city government employees. To register your business in Quezon City, prepare the following documents: The original copy of your Barangay Clearance The relevant national-level registration certificate of your business: theBusiness Name Registration Certificate from DTI for sole proprietorships or the Certificate of Incorporation from the SEC for partnerships and corporations Contract of lease if you are renting the business venue, or title to property and tax declaration if you own the business venue

The 3 "easy" steps are: 1. "Apply" - fill up and submit the registration form together with the requirements listed above 2. 3. "Pay" - pay inspection, zoning, and annual business permit fees "Get Permit" - as early the same day

8. How do you register your business with the BIR? To get a Tax Identification Number for your business and be able to issue receipts, you'll have to register it with the BIR. Prepare the following documents for submission: Filled-up BIR Application for Registration Form No. 1903 The relevant national-level registration certificate of your business: the Business Name Registration Certificate from DTI for sole proprietorships, or the Certificate of Incorporation from the SEC for partnerships and corporations Business Permit from the Local (City) Government

Submit all required documents to the Revenue District Office (RDO) having jurisdiction over the registered address of your business Pay the Annual Registration Fee (500 pesos) at one of the Authorized Agent Banks of the RDO Pay 15 pesos for the Certification Fee and another 15 pesos for the Documentary Stamp Tax Get your business' Certificate of Registration (Form 2303)

9. What are the different requirements in maintaining a registered business? Registering your business and getting your TIN is unfortunately only the first step in legitimizing your business. Regulatory laws require the submission of several other documents and requirements every month, quarter, and year. Monthly requirements Monthly Value Added Tax (VAT) Declaration (Form No. 2550M) Social Security System (SSS) contributions PhilHealth contributions Pag-Ibig contributions Quarterly requirement Quarterly VAT (Form No. 2550Q) Annual requirements Income Tax Return (Form No. 1702) Registration of books to BIR Financial statements to SEC General information sheet to SEC Renewal of Mayor's/Business Permit So that's it: 9 things that you need to do to make (and keep) your business legit. But remember that it does not end there: a legal business does not necessarily mean a successful business. You still have to get funding for equipment, materials, and operating expenses, make sure you have a good product, and let your market know your product exists. But at least if all of your papers are in order, you can sleep more soundly knowing that no government spook can come after you and that the reputation of your business is intact.