If you have discerned whether to start your own business, and you decide to go for it, then the next step for you would be to decide which business model you should go for. In the Philippines,you can choose whether to establish your business as a sole proprietorship or a corporation, depending on your needs.

What is a Sole Proprietorship?

A Medical Practice is an example of a sole proprietorship

A Sole Proprietorship is a business model where there is no separation between the business and the owner. Examples of sole proprietorships are medical practices, freelancers, and sari-sari stores.

Advantages of Sole Proprietorships

Sole Proprietorships are a good business model for small businesses, since they are very easy to establish. However, there are more advantages to setting up a sole proprietorship:

  • Less Capital: Sole Proprietorships need less capital (seed money) since you are your business, so there are no shares to distribute.
  • Less Paperwork: What makes Sole Proprietorships easy to establish is that there is less paperwork needed, since all you need are the LGU permits, a DTI Certificate of Registration, and the BIR’s approval. No need for Articles of Incorporation here.
  • You Always Have Complete Control: Since you are your business, this means that you have complete control on how your enterprise will grow.

Disadvantages of Sole Proprietorships

Despite these advantages, there are some aspects of Sole Proprietorships that are disadvantageous.

  • All Legal Liability is on You: Since you are your business, you assume all liabilities and risks, which can eat into your personal finances.
  • Your Business Stops With You: Since there is no separation between a sole proprietor and the business, your demise means the end of your business.
  • No Separation of Personal and Business Funds: Another problem with sole proprietorships is that there is no separation of personal and business funds, which will make budgeting harder.

What is a Corporation?

GMA is an example of a Corporation

A corporation is different from a sole proprietorship because a corporation has a legal personality separate from the incorporators/entrepreneurs. Examples of corporations include GMA, ABS-CBN, WWE, and BPI.

Advantages of Corporations

The main advantage of a corporation is that it has a separate legal personality from the owners. Thus, the advantages of establishing a corporation would include:

  • Limited Liability: Since a corporation is separate from the incorporators, the incorporators only assume the risks of their own investment. So, the corporation can be sued instead of the incorporators.
  • Separation of Personal and Business Funds: It is easier to separate your personal funds from business funds due to the separate personality of your corporation.
  • Succession: Since your corporation is separate from you, your business will continue to flourish even when you are gone.
  • You can Retain Complete Control: Since the Revised Corporation Code allows one-person corporations, you have a chance to retain complete control of your business.

Disadvantages of Corporations

Even though corporations may seem more advantageous than sole proprietorships, they still have some disadvantages.

  • More Paperwork: To establish your corporation, you have to go to the Securities and Exchange Commission (SEC) to submit many documents, including the Articles of Incorporation.
  • More Capital: Corporations require more capital to put up, due to the SEC filing fees and shares of stock.
  • Succession Disputes: Even if a corporation can go on after your demise, your heirs may fight over it if you do not provide for a succession plan.
  • You May Not Have Complete Control: Unless you are running a one-person corporation, you have to defer to the other stockholders of the corporation with regards to decision making. In a worst-case scenario, they can even force you out of your business.

Which Model Should My Business Take?

Choosing a desired business model depends on what you want your business to be. You can choose the ease of sole proprietorship, or decide to protect yourself by giving your business a separate legal personality as a corporation. In the end, the business model you choose will depend on your entrepreneurial needs and desires.

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