Key Takeaways
Incorporation vs corporation in the Philippines: incorporation is the process of registering with the SEC, while a corporation is the legal entity that results, with rights and obligations.
- Incorporation requires SEC registration and compliance documents
- Corporations need permits, a TIN, and bank accounts
- Both protect personal assets but require strict compliance
- Corporations attract investors and support long-term growth
One of the most important decisions for entrepreneurs in the Philippines is choosing the appropriate legal entity. The structure you choose will shape how you pay taxes, the extent of your personal liability, your funding options, and even your long-term growth.
Whether you’re launching your first startup or planning to expand an existing business, understanding the difference between incorporation and corporation helps you attract investors, secure loans, and operate sustainably.
At Unicapital, we work with entrepreneurs at every stage, helping you secure working capital for operations, inventory, or expansion, regardless of your chosen entity type. With so much riding on this initial choice, many find themselves asking fundamental questions about the process and the result: What exactly is the difference between incorporation and corporation?
Incorporation vs. Corporation: What’s the Difference?
The distinction is straightforward: incorporation is the legal process required for registering a business with the Securities and Exchange Commission (SEC). The corporation, meanwhile, is a distinct legal entity that comes into existence once that registration is finalized.
What is incorporation?
Incorporation is the legal process that formally establishes your business as an entity distinct and separate from its owners. It requires filing your Articles of Incorporation, registering your bylaws, and adhering to all SEC requirements.
This legal step is critical because it:
- Formally creates the corporation as a separate legal structure
- Grants the business its own rights, obligations, and legal protections
- Serves as the vital first step for entrepreneurs seeking credibility and major external financing
Example: A digital marketing agency incorporates to build credibility and apply for larger contracts with corporate clients.
What is a corporation?
A corporation is a fully recognized legal entity that comes into existence once incorporation is finalized. As a separate legal person, it can own property, hire employees, enter into contracts, and borrow money in its own name.
This structure is highly advantageous because it:
- Provides shareholders and owners with the crucial protection of limited liability
- Operates under distinct corporate tax rules and mandatory annual reporting standards
- Facilitates capital raising, making it easier to secure large loans or attract investment by issuing equity
Example: A manufacturing SME becomes a corporation so it can raise capital by issuing shares to expand production.
Requirements for Incorporation and a Corporation
Getting your business off the ground involves two stages: incorporating with the SEC, then completing additional registrations so your corporation can legally operate.
Requirements for incorporation
To formally register your corporation with the SEC, you must complete the following key steps:
- Secure a unique business name – Register a business name with the SEC that is unique and formally approved.
- Draft charter documents – Prepare the Articles of Incorporation and Bylaws, which outline the company’s purpose, internal governance, and ownership structure.
- Appoint leadership – Appoint the initial directors and officers. A minimum of two (2) to a maximum of fifteen (15) incorporators are required.
- Fulfill capitalization – Meet the mandated minimum capital requirements: at least 25% of the Authorized Capital Stock must be subscribed, and at least 25% of that subscribed amount must be paid-up.
- Pay registration fees – Pay all required registration fees, which are calculated based on the company’s authorized capitalization and its type.
Requirements for a corporation
Once your incorporation is finalized by the SEC, you must complete the following steps to legally operate your corporation:
- Secure tax compliance – Obtain a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR) to ensure your business adheres to all tax regulations.
- Obtain local permits – Secure both a barangay clearance and a Mayor’s Permit to comply with all local government unit (LGU) operational regulations.
- Establish corporate banking – Open a dedicated corporate bank account to maintain transparent financial records and strengthen future applications for business loans.
- (Optional) Register with PhilGEPS – Complete your registration with the Philippine Government Electronic Procurement System if you plan to bid on government contracts.
Covering registration fees, capital requirements, or setting up a bank account may stretch your early cash flow. Unicapital’s business loans can help bridge these initial costs so you don’t stall growth at the starting line.
5 Advantages and Disadvantages of Incorporation vs. Corporation
Choosing between incorporation and operating as a full-fledged corporation in the Philippines comes with both benefits and trade-offs. Understanding these will help entrepreneurs align their business structure with long-term goals and financial strategies. Below are some key considerations.
1. Limited personal liability
Both the incorporated entity (the corporation) and the act of incorporating protect the owners’ personal assets from business-related lawsuits or debts. However, this protection is only valid if you rigorously adhere to all corporate governance rules, such as maintaining strict separation between your personal finances and business funds.
2. Access to bank loans and investors
The corporate structure improves your business’s credibility with banks and investors, making it far easier to secure funding, whether through bank loans, venture capital, or angel investments.
While this offers a major advantage, be aware that obtaining such funding requires stringent compliance, including the submission of audited financial statements (AFS) and detailed documentation, which ultimately adds to your operational costs.
Unicapital bridges this gap by simplifying access to essential working capital for SMEs that may not yet qualify for the stringent requirements of large bank loans.
3. Raising capital through stock issuance
An advantage of the corporate structure is the ability to issue shares (equity) to investors, providing a direct method for financing large-scale expansion. However, this method comes with a major trade-off: it inevitably dilutes the founders’ ownership and requires strict compliance with all SEC regulations.
4. Credibility and reputation
Formal registration signals professionalism, which often opens doors to securing larger contracts and forming strategic partnerships. However, be aware that maintaining this professional status requires constant effort: ongoing compliance with annual reports, taxes, and mandatory corporate meetings consumes valuable time and resources.
5. Compliance costs and regulatory obligations
Staying compliant with regulations ensures legal protection and maintains your eligibility for government procurement. However, SMEs must be aware of the trade-off. The rigorous requirements for annual audits and detailed reporting can be burdensome, consuming a considerable amount of time and resources.
Consider compliance costs as an investment. By keeping strong, clean records now, you create the necessary documentation to qualify for critical business financing later on.
Build Your Business Backbone
The decision between incorporation (the process) and a corporation (the resulting entity) is a fundamental alignment of your legal structure with your financial ambitions. While incorporation secures legal recognition for your business, the corporate entity provides the robust framework necessary to attract investment, establish long-term credibility, and achieve scalable growth.
Ultimately, capital access is the fuel for expansion. Unicapital understands this, offering tailored solutions like a business loan in the Philippines to help SMEs secure working capital, finance inventory, or fund major expansion. With this, you can fully realize your corporate potential without being constrained by cash flow.
Fuel your corporate ambitions with adaptable funding solutions from Unicapital.
FAQs
1. What is the difference between incorporation and corporation in the Philippines?
Incorporation is the process of registering a business with the SEC. A corporation is a legal entity created after registration, with rights and obligations.
2. What are the requirements for incorporation in the Philippines?
You must register a business name with the SEC, prepare Articles of Incorporation and Bylaws, pay fees, and appoint directors. Capital requirements vary by business type.
3. How do you form a corporation in the Philippines?
Forming a corporation requires an SEC certificate, a TIN from the BIR, barangay and mayor’s permits, and a corporate bank account. Optional PhilGEPS registration enables government bidding.
4. What are the pros and cons of incorporating a business?
Pros: limited personal liability, better access to loans, and stronger credibility.
Cons: strict compliance rules, higher costs, and possible ownership dilution if shares are issued.
5. Can a corporation in the Philippines apply for a business loan?
Yes. Banks and investors often prefer corporations due to credibility. Options like a business loan in the Philippines can fund operations, inventory, or expansion.
