With the enactment of Republic Act No. 11232, also known as the Revised Corporation Code (RCC) of the Philippines, individuals — whether entrepreneurs or those pursuing non-profit ventures — can now establish a corporation.
The RCC updated the almost 39-year Corporation Code, removing the absolute requirement for a minimum number of incorporators for a corporation and introducing another business structure — One Person Corporation, or OPC. Prior to the amendment, entrepreneurs had limited options: operate as a sole proprietor, form a partnership, or establish a corporation with four or more persons owning one share each.
This article provides a comprehensive guide for transitioning from a sole proprietorship to a One Person Corporation (OPC), covering the benefits, eligibility criteria, documentary requirements, and the registration process.
Sole Proprietorship and OPC
A sole proprietorship is the simplest business structure, where a single individual runs the business, controls operations, enjoys all profits, and assumes all liabilities. While the proprietor may hire help, he or she retains full ownership and responsibility.
A One Person Corporation (OPC), on the other hand, is a corporation in its legal sense, except that it is registered with a single stockholder who also serves as the sole incorporator, director, and president. Such sole director is required to appoint a nominee and alternate nominee to ensure continuity of the corporation in case of the sole stockholder’s death, incapacity, or other unforeseen circumstances that may prevent him/her from fulfilling their role as the director or president of the OPC.
Benefits of Transitioning a Sole Proprietorship to OPC
While an OPC is a relatively new business structure in the Philippines, entrepreneurs considering a transition from a sole proprietorship should be aware of several important aspects, including its benefits:
- Separate Legal Entity. An OPC is a legal entity distinct from its single stockholder. This allows the corporation to enter into contracts, acquire assets, and engage in legal actions under its corporate name.
- Limited Liability. Transitioning from a sole proprietorship to an OPC limits liability to the invested capital, unlike a sole proprietorship where the owner is personally liable for business debts.
- Perpetual Existence. Unlike a sole proprietorship, which depends on the proprietor’s lifespan, an OPC benefits from perpetual succession and uninterrupted business operations. The company continues to exist even if the owner passes away.
- Liquidity of Shares. OPCs allow for the transfer of shares, making it easier to bring in new investors or transfer ownership to family members or partners. This feature facilitates capital infusion and provides an exit strategy for the owner.
- Tax Benefits. OPCs can benefit from various tax advantages, such as deductions and allowances that reduce overall tax liability. OPCs may also enjoy lower tax rates than individual business owners, resulting in cost savings and increased profitability.
- Capital Opportunities. OPCs can raise capital by issuing shares to investors, facilitating business growth or funding new projects. OPCs also have an easier access to funding from financial institutions compared to sole proprietorships.
- Scaling Up the Business. Converting from an OPC to an ordinary domestic corporation with multiple shareholders is more straightforward than transitioning from a sole proprietorship to the same corporate structure.
- Professional Image. Operating as an OPC gives the business a more structured and regulated business image, boosting professionalism. This fosters greater confidence among customers, suppliers, and partners, leading to better opportunities and stronger long-term relationships.
Eligibility Criteria for an OPC
While the introduction of an OPC through legislative reforms has also simplified the process for its registration and establishment, still there are strict qualifications that incorporators must meet (based on Chapter III of RCC and SEC MC7 (2019)):
- An OPC is a corporation with a single stockholder, who can be any of the following:
- a natural person, who must be of legal age, a Filipino or a foreigner subject to applicable capital requirements, and constitutional and statutory requirements based on the Foreign Investment Negative List (FINL)
- a trust or the subject managed by a trustee, not a trust entity (if the single stockholder is a trustee or another person exercising fiduciary duties, a proof of authority must be submitted)
- an estate (of the deceased allowed to form an OPC, not the administrator)
- The single stockholder and incorporator must appoint:
- a corporate secretary who must be a Filipino citizen and cannot be the same as the single stockholder
- a treasurer, who may be the same as the single stockholder, but must be a resident of the Philippines, and a surety bond is required; and
- a nominee and an alternate nominee to take over the corporation in the event of the single stockholder’s death or incapacity
- other administrative officers, as necessary.
- There is no required minimum authorized capital stock and paid-up portion, except as otherwise provided by applicable laws or regulations (Section 117, RCC).
- A natural person licensed to practice a profession may not organize as an OPC for the purpose of exercising such profession except as otherwise provided under special laws. Banks and quasi-banks, preneed, trust, insurance, public and publicly listed companies, and non-chartered government-owned and -controlled corporations may not also be allowed (Section 116, RCC).
Requirements for Transitioning a Sole Proprietorship to an OPC
To transition from a sole proprietorship to an OPC, the following documentary requirements must be met:
- Corporate Name (reserved and verified; letters “OPC” must be indicated)
- Tax Identification Number (TIN) (for Filipino stockholder) and TIN or Passport Number (for foreign single stockholder)
- Consent or Acceptance Letter from the nominee and alternate nominee
- Articles of Incorporation (including company name, purpose, principal office address, incorporators, directors, capital structure, and other details; Bylaws are not required)
- Proof of Authority to Act (if a trust or estate)
- Foreign Investments Act (FIA) Application Form (for foreign natural persons)
- DTI Certificate canceling the existing sole proprietorship registration
- Latest Audited Financial Statements (AFS) of the sole proprietorship
- Deed of Assignment (assigning all assets, liabilities, and properties of the sole proprietorship to the new corporation)
How to Transition a Sole Proprietorship to OPC
Technically, a sole proprietorship cannot be directly converted to an OPC. To do the transition, a new OPC must be registered, and the sole proprietorship must be retired. Follow the steps below: 
STEP 1: Secure a Corporate Name for the OPC
Apply to retain the same name, but it must first be approved by the SEC. Through the SEC Name Reservation and Verification System, the Commission will check if the name is allowed or available, and if not, a new corporate name must be verified and reserved. Ensure the name includes the “OPC” acronym.
STEP 2: Incorporate the Business with the SEC
Register your OPC with the SEC using their Electronic Simplified Processing of Application for Registration (eSPARC) system. Prepare and submit the required documents. Pay the filing fees via convenient payment channels.
STEP 3: Secure Business Permits and Other Registration Certificates
After registration with the SEC, proceed with registrations with the local government units (barangay and city or municipality), Bureau of Internal Revenue (BIR), and other statutory agencies (SSS, PhilHealth, and Pag-IBIG Fund) for the issuance of business permits and registration certificates (CORs).
STEP 4: Cancel the Sole Proprietorship Registration
Since DTI and SEC regulate different entities, you must cancel or retire your sole proprietorship registration after the OPC is registered.
STEP 5: Transfer Business Assets and Liabilities to the New OPC
Execute a Deed of Assignment or Deed of Sale to transfer all assets, liabilities, and properties from the sole proprietorship to the OPC.
STEP 6: Update Business Operations
Notify clients, suppliers, and partners of the transition. Update contracts and agreements, and rebrand if necessary.
SEC Reportorial Requirements
Once the OPC is registered, it must comply with the following reportorial requirements (Section 129, RCC):
- Annual Audited Financial Statements (AFS) filed within 120 days from the end of its fiscal years as indicated in its Articles of Incorporation (AOI);
- A report on all explanations or comments by the president on the qualification, reservation, or adverse remarks made by the auditor in the financial statements;
- A disclosure of all self-dealings and related party transactions entered between the OPC and the single stockholder; and
- Other reports as may be required by the SEC.
Transitioning from a sole proprietorship to a One Person Corporation (OPC) offers several benefits, including limited liability, business continuity, and greater opportunities for growth. Though the process can be complex, understanding the legal requirements and following the correct procedures ensure a smooth and successful transition.
Need further information and assistance regarding Transition from Sole Proprietorship to One Person Corporation (OPC)? Talk to our team at Duran & Duran-Schulze Law to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.
