SPECIAL LAWS ON BUSINESS REGULATION

PREPARED BY:
BILLIE JOY A. BALBASTRE

STARTING A BUSINESS REFERS TO ALL PROCEDURES THAT AN ENTREPRENEUR NEEDS TO CARRY OUT TO BEGIN LEGALLY OPERATING AND START TRADING IN THE MARKETPLACE

Two main types of regulatory controls

a) Registration is the simple procedure that requires entrepreneurs to furnish the government with necessary information prior to legal operation Licensing requires entrepreneurs to meet substantive conditions prior to legal operation.

b)

WHY IS THERE A NEED TO REGULATE BUSINESSES?

To protect the public interest and to create enabling conditions for effective markets thereby generating positive social outcomes. DEVOLUTION OF REGULATION

Regulation through the issuance of business permit and/or license (BPL) is traditionally lodged with local governments.
WHY IN LOCAL GOVERNMENT? Since local governments are closer to the market, the benefits and costs of business regulation goes to the local community. At the local level, the local government units (LGUs) are empowered by the Local Government Code (LGC) to tax real property, give business licenses and permits and collect business taxes.

BUSINESS LICENSING AS LOCAL REGULATION

In general, regulating local business activity through licensing is concerned with: a. Public health and safety b. environmental hazards, c. public order, d. consumer protection,

e. limiting the number of competitors

f. preventing public nuisance.

GENERAL SET-UP LICENSING (GSL)

The current general business licensing environment in the Philippines can be characterised as general set-up licensing (GSL), as it imposes blanket regulation on all entrepreneurs before they can operate a business. GSL is imposed for operational clearances to ensure minimum standards, address devolved functions and meet nationally mandated requirements.

SECTORAL SET-UP LICENSING (SSL)

applies specifically to entrepreneurs wanting to engage in specific sectors, and requires approval from a sector licensing authority before they can secure a permit and license.
Example: Banks Bangko Sentral ng Pilipinas Insurance - Insurance Commission Schools Department of Education or Commission on Higher Education

BUSINESS LICENSING AS REVENUE

Taxation of business by local governments is authorised by the LGC to enable cities to raise local revenues. On top of the business tax, cities impose a permit fee, again with rates depending on the business type. REGULATORY FEES

reasonable fees and charges on business and occupation commensurate with the cost of regulation, inspection and licensing

 Business regulations in the Philippines are based on a broad range of legal instruments and decisions, including laws, codes, licenses, permits, decrees, departmental memorandum orders, and even memorandum of agreements.
Before one can start a business, he/she has to go through many steps and interact with multiple public sector agents at different levels of government, involving barangay, city, and national authorities.

FIVE CATEGORIES OF BASIC ADMINISTRATIVE REQUIREMENTS

Screening requirements (e.g., check name for uniqueness, commercial registration, notarise application); Tax-related requirements (e.g., local: business tax, regulatory fees; national: secure taxpayer identification number (TIN), register for Value-Added Tax (VAT)/non-VAT);

Labour standards and social security-related requirements (e.g., register with the Social Security System (SSS), Philhealth, Department of Labour and Employment (DOLE), and Pag-IBIG);
Safety and health requirements (e.g., pass inspections and obtain certificates related to work safety, building, fire, sanitation, and hygiene); and Sector-related requirements (e.g., environment, standards and other public-interest regulation).

SCREENING REQUIREMENTS
The main function of screening procedures is to ensure that enterprises conduct activities that are in accordance with the existing legal framework. Usually, the first step is to register the name of the business.

WHERE TO REGISTER BUSINESS NAME

SOLE PROPRIETORSHIP Department of Trade and Industry

PARTNERSHIP and CORPORATION Securities and Exchange Commission

WHY THE NEED TO REGISTER BUSINESS NAME? 1. Commercial registration creates legal entities which can be identified due to a unique name with rights and responsibilities. 2. It also furnishes the government with relevant information and statistics necessary for crafting economic policy. 3. To protect both the consumers and business owners

TAX-RELATED REQUIREMENTS
Business are required to secure a TIN and to register for various taxes including VAT to start legally trading. Registration with the Bureau of Internal Revenue (BIR) involves an annual fee. Real property tax (RPT) clearance and payment is a pre-requisite for business tax assessment and issuance of permit and license in some cities.

LABOR STANDARDS AND SOCIAL SECURITYRELATED REQUIREMENTS

A. HOME DEVELOPMENT MUTUAL FUND (Pag-ibig)

(Republic Act No. 9679 otherwise known as Home Development Mutual Fund Law (HDMF) of 2009 )
B. Social Security System (SSS)

(Republic Act No. 8282 otherwise known as Social Security Law)

C. Philippine Health Insurance Corporation (PhilHealth)

(Republic Act 7875, known as "The National Health Insurance Act of 1995)

SAFETY AND HEALTH REQUIREMENTS

This regulation is in place to protect consumers from undesirable sellers and to make sure that consumers buy safe and approved products. Operational clearances for building, fire and sanitation are required to ensure workplace safety.

SECTOR-RELATED REQUIREMENTS
The city and sector-regulating national agency requires businesses to obtain various permits and licenses to operate in certain sectors, engage in a specific activity or practice occupations. Locational clearance is a requirement to ensure that business start-ups locate in or comply with the citys zoning ordinance. This addresses the city governments land use and management plan.

THREE REQUIREMENTS BEFORE A BUSNIESS CAN LEGALLY OPERATING

(1) business registration

issued by DTI or SEC, is imposed on all businesses and gives the business its juridical personality
(2) business license

is a special privilege, permission or authority granted by authorised sector regulating agencies at the national and/or local level to regulate the business operation of a single proprietorship, partnership or corporation
(3) business permit issued by the Mayor, authorises the business to operate in the locality

TO FULLY REGISTER A NEW BUSINESS, ENTREPRENEURS TYPICALLY MUST APPROACH AT LEAST 10 GOVERNMENT AUTHORITIES ACROSS LEVELS OF GOVERNMENT:
DTI/SEC (commercial registry); Barangay (barangay clearance, community tax certificate (CTC)); City (mayors permit/license);

City or NGA (line/attached agency) (sector-specific license/permit);

BFP (fire clearance) BIR (tax authority); SSS (social insurance); PhilHealth (health insurance); and Pag-IBIG (housing security); DOLE (labour statistics)

DIFFERENT TYPES OF BUSINESS ORGANIZATION

Sole Proprietorship

Partnership
Corporation

SOLE PROPRIETORSHIP
A single proprietorship is the simplest form of business organization in the Philippines. It is a business structure owned by an individual who has full control/authority of its own and owns all the assets, as well as personally answers all liabilities or suffers all losses but enjoys all the profits to the exclusion of others. Sole Proprietor is a type of business that is owned and managed by a single individual.

ESTABLISHMENT, MANAGEMENT AND OPERATIONS

The establishment, management and operations of this form of business organization is not governed by a special law, unlike in the case of corporations. A single proprietorship is the simplest form of business organization in the Philippines. It is not encumbered by the strict regulatory laws and rules imposed upon corporations and partnerships.

However, resort to general laws governing civil obligations and contracts or business and commercial transactions may be made.

WHO CAN APPLY FOR SOLE PROPRIETORSHIP?

Filipino Citizen

At least 18 years of age

Filipinos whose name are suggestive of alien nationality must submit proof of citizenship such as birth certificate, PRC ID, voters ID, passport. If the applicant has a foreign sounding name, or acquired Filipino Citizenship by naturalization or election or by other means as provided by the law, he must submit proof of Filipino citizenship such as Certificate of Naturalization and Oath of Allegiance or valid IDs issued by the Intergrated Bar of the Philippines or the Professional Regulatory Commission.

PARTNERSHIP
A partnership consists of two or more persons who bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. (Article 1767, The New Civil Code) It proceeds from the concept that persons may be allowed to pool their resources and funds to engage in the pursuit of a common business objective without necessarily organizing themselves into a corporation, upon which the law imposes a much higher form of regulation, limitation and standards.

 Partnerships in the Philippines are governed by and covered under Articles 1767 to 1867 of the Civil Code of the Philippines.
These are the provisions of law which govern all aspects of partnerships - from their creation, formation, existence, operation and management to their dissolution and liquidation, including the obligations of the partners to one another, to the public or third persons and to the government.

PARTNERSHIP, HOW FORMED; REGISTRATION REQUIREMENT

Partnerships are required to be registered with the Securities and Exchange Commission [SEC]. Registration is done by filing the Articles of Partnership with the SEC. The Articles of Partnership set forth all the terms and conditions mutually agreed by the partners thereto. . A partnership with more than P3,000 capital must register with the Securities and Exchange Commission (SEC).

CORPORATION
Within the context of Philippine law, a "corporation" is treated as an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence (Section 2, Batasang Pambansa Blg 68 (Corporation Code of the Philippines) GOVERNING LAW: Batasang Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines

LIMITATION ON FOREIGN EQUITY HOLDINGS The equity requirements should be strictly observed and followed in certain areas of business where the constitution and the laws of the Philippines impose limitation on foreign holdings.

Generally, however, foreigners may invest as much as one hundred percent [100%] equity in areas not covered by the Negative List under the Foreign Investments Act.

 REPUBLIC ACT 7042 AS AMENDED BY RA 8179, ALSO KNOWN AS THE FOREIGN INVESTMENTS ACT OF 1991
The basic law that governs foreign investments in the Philippines. It is considered a landmark legislation because it liberalized the entry of foreign investments into the country. Under this law, foreign investors are allowed to invest 100% equity in companies engaged in almost all types of business activities subject to certain restrictions as prescribed in the Foreign Investments Negative List (FINL).

LIST A : INCLUDES THOSE RESERVED TO PHILIPPINE NATIONALS BY THE CONSTITUTION OF THE PHILIPPINES.
[a]

exploitation of natural resources [100% domestic equity]

[b] operation of public utilities [60% domestic equity] [c] mass media [100% domestic equity]

[d] educational institution [70% domestic equity]

[e] labor recruitment [65% dom. equity] [f] retail trade [100% dom. equity] [g] rural banking [100% dom. equity]

LIST B : INCLUDES THOSE REGULATED BY LAW.

[a] defense-related activities

[b] manufacture and distribution of dangerous drugs

[c] nightclubs, bathhouse and similar activities [d] small and medium-sized domestic market enterprises with paid-in equity capital of less than US$500,000.00 [e] export enterprises utilizing new materials from depleting natural resources with paid-in equity of less than US$500,000.00