Legal Aid 101: Setting Up Your Food Business

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: Setting Up Your Food Business

By Geraldine Rullan-Borromeo

Registering your business can be as easy as pie or a regurgitated nightmare if not given careful attention and preparation. A business has often needed to restructure because it has failed to properly consider its legal framework and the extent and nature of its operation.

Who Owns the Business? In registering any food business, the first step is to determine its legal structure, whether it will be a single proprietorship, a partnership, or a stock corporation. Thus, one has to consider the following legal structures:

Single Proprietorship is a business in the name of one person, and the management and operation of the business is in the hands of the registered owner, who makes all the business decisions.

However, personal properties are liable for all the business obligations of the owner and in case he or she is married, the conjugal property will also be liable for the obligations of the single proprietorship. Registration of a single proprietorship is made through the Department of Trade and Industry (DTI).

A Partnership, on the other hand, is a business that is managed and operated by at least two (2) partners. Their liability is in accordance with their partnership agreement as stated in the Articles of Partnership submitted to the Securities and Exchange Commission (SEC). The Partners’ personal properties and their respective conjugal properties are also generally answerable for the liabilities of the partnership business after the partnership assets have been exhausted. Limited partnerships can limit such liabilities per partner, if registered as such. If, for example, a restaurant partnership is indebted to a food supplier in the amount of Php100,000.00 and the restaurant has capital assets and income of only P50,000.00, the balance of the debt may be satisfied from the conjugal or personal properties of the partners.

A Stock Corporation is owned by at least five (5) stockholders. The management and operation of the business is the responsibility of a board of directors elected by the stockholders. It has a juridical personality separate from its stockholders, and the assets of the corporation are primarily responsible for its liabilities. The personal properties of the stockholders cannot pay for the obligations of the corporation unless they manifest bad faith in the transactions personally undertaken by a specific stockholder. The registration of a stock corporation is also made through the SEC. The Name Game After the legal structure has been chosen, the next step is to reserve a business name with the DTI or the SEC, which can be done through www.bnrs.dti.gov.ph or www.sec.gov.ph The name must comply with the Republic Act 3883 also known as the Business Name Law and its Implementing Rules and Regulations.

The territorial application of the food business name must be specified if it is to be used within a barangay, a municipality, a city, a region or used nationwide. This specification will determine the confinement of the use of the food business name within the territory and the extent of validation of the business name applied for. For example, if the territory specified is Makati City, any expansion outside the city will require a new registration.

For purposes of checking the availability of a food business name, the validation will also be within Makati City and will be compared within the food equipment and supplies industry database to check if the name will be confusingly similar to another establishment. A notarized undertaking to change the business name is required in case there has been a violation of the Business Name Law within the food industry database.

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Legal Aid 101: Setting Up Your Food Business Part 2

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: Setting Up Your Food Business Part 2

By Geraldine Rullan-Borromeo

Consider the Location

One important consideration for complying with the requirements for registration is the selection of the business address of the establishment. Also zoning considerations for any food business must be checked with the local government unit where the business is located—the barangay and the municipality or city.

The registration will require a complete address, meaning the building number, the street name, the barangay, and the municipality or city. The floor number or unit number in a building is not required for purposes of registering the business and is better left out to provide some flexibility for a lessee to move to another floor or unit number within the same building.

For businesses that will lease commercial spaces, the conduct of due diligence on the building is called for. The building must be compliant with Republic Act 6541 also known as the Building Code. If the leased space is not compliant, then the business may not be granted a business permit by the municipality or city where the building is located.

Pinoy or Not Pinoy?

Next, the nationality of the business also has to be determined. If it is a 100% Filipino-owned business then Republic Act 7042 also known as the Foreign Investments Acts (FIA) will not come into play. Once there is a foreign investor involved to any extent, it would be wise to check the FIA and verify if the business activity falls within the Negative List which restricts foreign investments or requires a minimum capitalization for foreign investments to be allowed. For more information, log on to www.boi.gov.ph

The Business Details

The nature of the business will also determine if a prior endorsement from another government agency is required. Generally, the different businesses within the food industry do not require any prior endorsement from any government agency.

There are, however, certain business activities within the food industry where a certification is issued by the Bureau of Food and Drugs, which regulates certain food manufacturing activities. The BFAD has a set of requirements that will need compliance before a favorable endorsement is obtained.

There are also different capitalization requirements for the different kinds of businesses within the food industry that can be registered with the DTI and the SEC. For a complete list of the Documentary Requirement for the Registration of Corporations and Partnerships, please visit DOCUMENTARY REQUIREMENTS FOR REGISTRATION and A CITIZEN’S MANUAL ON
REGISTRATION OF CORPORATIONS & PARTNERSHIPS For the DTI please see www.dti.gov.ph

For proof of capitalization, a trust account in favor of the proposed business is required. The depository banks will provide the forms necessary to accomplish this and will require a copy of the proposed application with the DTI or the Articles of Partnership or Incorporation, along with the bank’s own set of requirements for opening a trust account. Once the business has been registered the trust account can be converted into the account of the registered business.

In accomplishing the business registration requirements, the application forms for the DTI, the Articles of Partnership and the Articles of Incorporation of the SEC, it is best to consult with a lawyer or the officers-of the- day of the DTI or the SEC.

The rule of thumb in business registration is to pre-qualify the compliance with the requirements even before submission to the extent possible with the DTI and SEC. Harnessing government resources is a way of making your taxes work for you. Consulting with government lawyers that have been assigned as officers-of the-day for their departments is free. With their help, the registration can go smoothly and will be processed faster.

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