ONE PERSON CORPORATION VS. SINGLE PROPRIETORSHIP

Recently, the Revised Corporation Code (Republic Act No. 11232), took effect and one of the major developments is the concept of a One Person Corporation (OPC). Under the said concept, an individual natural person (or a trust or an estate) may, by himself (or itself), establish a one-person corporation (Section 116, RCC) for any purpose allowed by law such as pursuit of a commercial enterprise.

Here are some of the differences in both type of business so as to make it easy for the owners to decide what to choose between two of them.

What is Single Proprietorship?

It allows an individual to register in the Department of Trade and Industry (DTI) his or her trade without the need of partners or any other person. In other words, it is the “simplest form of business organization.”

What is One-Person Corporation?

It is a corporation registered in the Securities and Exchange Commission  that does not require any other incorporators. One person is enough and even trust and estate can be a stockholder. With the previous corporation law, there should be at least five stockholders and no more than 15. Also, trust and estate cannot be stockholders.

Moreover, the corporate name of an OPC is required to bear the suffix ‘OPC’ (Section 120, RCC) to distinguish it from the usual corporation.

The provision for a one-person corporation will encourage the formation of more businesses in the country by making it easier for entrepreneurs to start a limited liability company. These new businesses, in turn, are anticipated to contribute towards the country’s efforts on job-generation and economic expansion.

What are the differences between the two?

1) Liability

One Person Corporation

It has a separate juridical personality from its individual owner. The value of this is that a juridical person is only liable to the extent of its investment. It has separate tax identification numbers (TIN). Therefore, if the corporation loses money, or is sued, and it does not have money to pay, the creditor or claimant loses. Except, when the corporate vehicle is used for fraudulent purposes, in which case, the courts may step in to pierce the veil of corporate fiction to make the individual owner liable.

Single Proprietorship

It is directly liable as the businessman and the private person are one and the same human individual.

The single proprietor and the business are considered as a single entity. They share the same TIN. Should the business close and creditors run after the owner, they can also pursue the owner’s personal assets and properties. This is referred to as unlimited liability.

2) Tax

One Person Corporation

It can use the itemized deduction but it has better access to the standard optional deduction of 40 percent for income tax purposes. A corporation can deduct direct costs first (cost of goods sold or cost of service), then deduct the 40 percent optional deduction from its gross income.

Single Proprietorship

It can deduct the 40 percent optional deduction only from its gross revenue or sales. The only advantage of a single proprietor is when it has a small revenue not exceeding P3 million as it can be subject to a final tax of eight percent, compared to a corporation’s 30 percent income tax plus percentage tax or VAT.

3) Succession

One Person Corporation

Under the new corporation code, a corporation’s life is now perpetual.

The OPC owner, as early as the application for registration, designates a nominee and an alternate nominee, as required by the SEC. In the event of death or incapacity of the OPC owner, the nominee takes over to run the business, temporarily, to allow for smooth turnover of the business and powers to the heir who is interested to continue the business. There is no need to register a new corporation or business for the heir who takes over.

Single Proprietorship

Natural persons could not live longer than corporations. The death of the proprietor carries the death of its legal entity. When the single proprietor dies, the assets of his business (as well as the liabilities) are passed on to his children or heirs – but not the license over the business, which expires along with the individual businessman. If the children or heirs want to continue the business, they must secure a new license to do business.