The Pros and Cons of One-Person Corporations

The general goal of the establishment of one-person corporation (OPC) is to encourage entrepreneurship, entice foreign investment, and support the growth of micro, small, and medium enterprises (MSMEs) without needing several shareholders and imposing a minimum capital requirement.

This guide will walk you through the basic features, advantages, and disadvantages of a one-person corporation. Keep reading!

Single Stockholder But Not Alone

A company with a single stockholder can register for incorporation and become a one-person corporation. The single stockholder will act as the sole Director and President of the corporation responsible for making all business decisions. If intended, the single stockholder can also be the self-appointed Treasurer. However, the appointment of a separate Corporate Secretary is required and is tasked to support governance and ensure compliance with all laws.

The Revised Corporation Code also requires the appointment of a Nominee and an Alternate Nominee who would take charge of the corporation upon incapacity or death of the Director and President. The Nominee or Alternate Nominee shall then facilitate the turnover of the corporation to the designated legal heir.

Identified With Suffix “OPC”

A registered one-person corporation uses the suffix “OPC” to indicate that it has a single stockholder. The suffix is added at the end of the company name or below it. It is the counterpart of “Corp.” or “Inc.” in ordinary stock corporations.

Transferability of Shares

The transfer of shares in a one-person corporation is allowed although the process is not expressly defined and elaborated in the Revised Corporation Code. The single stockholder will be called the “assignor” or “transferor” while the buyer will be called the “assignee” or “transferee”. To learn more about the transfer of rights to all capital outstanding stock of an OPC, click here.

Perpetual Corporate Term

Unless a specific term is stated, a one-person corporation can exist perpetually. In case the single stockholder dies or becomes incapable, the business of the OPC continues. However, for an incorporated trust or estate, the term of existence runs concurrently with the existence of that trust or estate.

Complete Control

All business decisions are made by the sole Director and President of the one-person corporation. Consequently, all business profits belong to the Director and President too.

OPC vs. Sole Proprietorship

There are main differences between a one-person corporation and a sole proprietorship.

First, a one-person corporation is separate from its single stockholder while a sole proprietorship is the same as the sole proprietor. The personal assets, liabilities, and even death of the single stockholder will not affect the obligations and continuity of the OPC.  On the other hand, a sole proprietorship is one and the same as the sole proprietor. When the sole proprietor incurs a debt or dies, the sole proprietorship suffers the same consequences.

Second, a one-person corporation generally has lower income tax dues than a sole proprietorship. In a sample calculation of tax rates, the itemized deduction mode and the optional standard deduction mode result in a lower tax rate for an OPC than for a sole proprietorship. Note also that an OPC is subject to a fixed 30% income tax rate while a sole proprietorship may be elected under an 8% gross income tax regime or under the graduated income tax rates of 20%-35%.

Advantages of a One-Person Corporation

Open to Foreign Investors

Foreign investors are allowed to register a one-person corporation in the depending on the country of application — as long as it follows the provisions of the Foreign Investments Act and other applicable special laws in that country. The OPC must also fall under an industry that allows 100% foreign ownership. These industries include manufacturing, retail, export, business process outsourcing (BPO), knowledge process outsourcing (KPO), and e-commerce. Foreign investors are also required to declare a paid-in capital of at least USD 200,000.

Convertible

Within sixty (60) days of notice to the SEC, a one-person corporation may be converted to an ordinary stock corporation. This occurs when the single stockholder of the OPC no longer owns all the outstanding capital stock in the corporation.

Similarly, an ordinary stock corporation can be converted to a one-person corporation if a single stockholder has acquired all the outstanding capital stock of the corporation. The conversion requires a corresponding Certificate Authorizing Registration or a tax clearance certificate from the Bureau of Internal Revenue.

Limited Liability

The personal assets of the single stockholder are protected from the debts and liabilities of the one-person corporation. As long as there is evidence that the OPC is adequately financed without the single stockholder's personal assets, the single stockholder is shielded by the "corporate veil".

No Minimum Capital

Unless stated by special laws, a one-person corporation has no minimum capital requirement upon incorporation. To register as an OPC, the applicant just needs to declare the proposed authorized, subscribed, and paid-up capital.

Unlimited Filings

The guidelines released by the Securities and Exchange Commission state that there is no limit to the number of one-person corporations that a person can register.

Disadvantages of a One-Person Corporation

Not For All

Incorporation as a one-person corporation is limited only to a natural person of legal age, a trust, or an estate. The following are not allowed to register as OPC:

1. Professionals who practice law and medicine
2. Banks
3. Non-bank financial institutions
4. Quasi banks
5. Insurance
6. Public and publicly listed companies
7. Non-chartered government-owned and controlled corporations (GOCC)

More Requirements Needed

There may be other requirements needed to register a one-person corporation such as the following:

1. Articles of Incorporation
2. Annual audited financial statements
3. Explanatory report regarding audit findings and recommendation(s)
4. Information on all self-dealings between the OPC and the director
5. Other reports required