How to Convert a Sole Proprietorship to a Corporation in the Philippines

Many entrepreneurs begin their business journey as a sole proprietorship—a simple and cost-effective structure for small operations. But as the business grows, so does the need for limited liability, corporate identity, and greater scalability. The logical next step? Converting the business into a corporation.

This article provides a clear guide on how to convert a sole proprietorship to a corporation in the Philippines, including the legal process, requirements, and strategic benefits.

Why Convert from Sole Proprietorship to Corporation?

Before diving into the process, here’s why business owners make the shift:

✅ Limited Liability: Protects personal assets from business liabilities

✅ Corporate Identity: Builds credibility with clients, banks, and investors

✅ Ownership Flexibility: Allows multiple shareholders

✅ Business Continuity: A corporation can continue to exist even if the owner exits

✅ Access to Capital: Easier to attract investors or obtain financing

Step-by-Step Guide to Conversion

Step 1: Settle Obligations of the Sole Proprietorship

Before transitioning, make sure to:

• Pay outstanding debts and taxes

• File all required tax returns

• Cancel business permits, if applicable

Then proceed to retire the sole proprietorship through the following:

• Submit a DTI Affidavit of Cancellation of Business Name Registration

• File closure with BIR, LGU, and other concerned agencies

Step 2: Prepare for SEC Registration

Once the sole proprietorship is officially closed, begin preparing to incorporate a new entity.

Requirements include:

• Proposed corporate name (must be distinct from the previous DTI-registered name)

• Articles of Incorporation and By-Laws

• Treasurer’s Affidavit

• Notarized documents of incorporators and directors

• Minimum number of incorporators: 2 to 15 (may include foreign individuals depending on industry)

• Minimum capital depends on the type of business (some may require ₱5,000 minimum paid-up)

Use the SEC Company Registration System (CRS) at crs.sec.gov.ph for submission and name reservation.

Step 3: Register the Corporation with Other Government Agencies

After SEC approval, register with:

1. BIR

   • Apply for Certificate of Registration (BIR Form 2303)

   • Register books of accounts

   • Apply for Authority to Print (ATP) or use computerized accounting systems

2. LGU

   • Secure Barangay Clearance and Mayor’s Permit (using SEC documents)

3. PhilHealth, SSS, and Pag-IBIG

   • Required if you will have employees

Can You Use the Same Business Name?

If the business name from the sole proprietorship is well known and you're using it as part of your brand, you may:

• Include it as part of the new corporation’s name (e.g., “Baker’s Delight Inc.” instead of “Baker’s Delight by Anna”)

• File a trademark with IPOPHL to protect the name under corporate use

• Add a notation in your social media or website stating “formerly known as…” to retain brand recognition

🔍 Important Considerations

• Tax Identification Number (TIN): The sole proprietorship’s TIN is non-transferable. The new corporation must obtain a separate TIN.

• Assets and Liabilities: Any transfer of assets from the sole proprietorship to the corporation must be documented, and may involve taxes (e.g., capital gains or documentary stamp tax).

• Clients and Contracts: Notify clients, suppliers, and partners about the change in entity and update contracts accordingly.

✅ Benefits of Incorporating

Feature	Sole Proprietorship	Corporation
Legal Entity	Not separate from owner	Separate legal personality
Liability	Owner is personally liable	Limited liability
Ownership	Single owner	Multiple shareholders
Business Lifespan	Ends with owner	Continues indefinitely
Capital Raising	Personal funds or loans	Easier to attract investors

Converting a sole proprietorship into a corporation is a strategic move for growing businesses in the Philippines. It may involve paperwork and regulatory steps, but the long-term benefits in legal protection, credibility, and growth potential far outweigh the initial effort.

At GC Law, we help entrepreneurs make this transition smooth, compliant, and aligned with their business goals.