3 Things That Aren’t Obvious About Starting A Business in the Philippines

There are recurrent pieces of advice that I give people about starting a business in the Philippines. The typical Filipino is very wary of the law, and the “hassle” of dealing with the law is often all that stands in the way of their acting on a business idea. It is the job of a lawyer to separate the legitimate concern for legal requirements from needless worrying. In doing this for my clients, I find myself repeating certain phrases across different consultations. I shall list them for you here.

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1. It’s OK to do/start business before all the paperwork is in order.

There is a real reverence for legal requirements in the Philippines. A pervasive misconception that exists is that the legal requirements are a condition of doing business that must be fulfilled before anything can happen. These are things like your BIR Registration, SSS Remittances, and SEC/DTI Registration to name a few. If we look at the law itself, yes, the NIRC, SSS Law and SEC require everything to be in order before a business begin its operations.

In practical terms though it is difficult to procure all of these requirements and know exactly when one might obtain them. Due to the challenges faced by members of the government service, it is not an uncommon experience to wait up to or more than a year for all the paperwork to be completed. It is also a very common experience that at the time the applications for these various government requirements are granted, the facts could be very different from what was listed on those application. Examples include a changed address, key employees may have been swapped out, more people may be invested in the venture, and the business could be a very different one what was originally intended. These kinds of discrepancies are also penalized under the law.

It seems then that if we are strict with the law, if we do business we are going to violate some rule or regulation. There is a saying “If a cop follows you for 500 miles, you’re going to get a ticket.” Simply put, we’re all going to make mistakes. (Yes, even lawyers.) These mistakes exist on a scale though and the mistakes outlined in this entry are of the smaller variety. They are seldom, if ever, penalized. If you bothered to lodge the proper applications, you will probably not get into trouble.

The reason people get anxious around these requirements is that they believe that the government is full of people ready to “catch them”. This takes me nicely to my next point.

2. The Government and its Employees are different.

I understand that our government is seen as cumbersome and inefficient. However, it is, for the most part, staffed by very reasonable people. Government workers are overworked and underpaid for the service that they render. However, they will not go out of their way to make lives harder for people trying to do business. In fact, they are probably very pleased to see a compliance minded individual walk into their office because they know the likelihood of that person messing up in a major way is low.

The key phrase is “major way”. Government Officials are inundated with violations and they have to prioritize the most serious offenses. This means that if your concern is a minor one, it is easy enough to offer a sincere apology and at the worst pay a small fine for the privilege of having a small infraction removed from your record. All that is often required is an apologetic tone and a willingness to have a resolution oriented conversation.

I have seen businessmen be their own worst enemies when it comes to trying to solve problems they have with government bureaucracy. Businessmen make the mistake of seeing an intrusion into their business by a large government out to get them, as opposed to a lone government employee just doing his/her job. If you are not careful, you can wind up making enemies you did not know you could have.

3. The Law is not the frame, its the canvas.

The Law is often seen as a constraint. It is what limits options because the most basic understanding of the law is that it is a set of prohibitions. This is correct in a sense, but the Law can also be a source of opportunities.

People see the law as something to be complied with. As it applies to our discussion, a businessperson sees a lawyer’s number on his phone the same way he/she sees a supplier’s, contractor’s, or customer’s number. They call a lawyer to get something done. This manner of dealing with the law works but it is not the best paradigm with which to approach the law in the Philippines. The law is a world view, an objective way of seeing the world that can open up avenues for you. I’ll supply a concrete examples.

I had the privilege of advising a man on his money lending business. He had been doing it long enough that he had no trouble finding credit worthy people to lend to. He sought my advice because he had a vague sense that he needed to be protected as his business grew. The consultation, which initially was only supposed to be under an hour, lasted appreciably longer because I revealed how across different special laws there was a kind of road map for a money lending business. This road map starts at the business of lending to ones neighbors and can be traced all the way up to a Universal Bank with billions of pesos being held and lent out. This single conversation forms the basis for an expansion plan that continues up to this very day.

If you can come to a better understanding of the law, it makes pathways previously obscured available. Instead of merely answering “What aren’t we allowed to do?” the law can begin to answer “What else can we do?”

Conclusion

This is not legal advice, if you have a specific concern I highly encourage you to speak to a lawyer. I speak in generalities because this article seeks to disabuse people of certain notions they have about the Philippine legal framework. This article is intended for the average person starting a small business. Definitely, my advice will differ if we are talking about a serial entrepreneur or a heavily regulated industry.

I hope that some of this advice inspires you to get out there and work on that great business idea you’ve been sitting on. Good luck to any current/future entrepreneurs reading this!

2 thoughts on “3 Things That Aren’t Obvious About Starting A Business in the Philippines”

  1. Thank you very much for the information. I hope there is a like button somewhere so that I don’t have to write a comment.

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