Business Mirror

Atty. Mabel L. Buted discusses the issues that are encountered in the process of closing a business.

Closure

By: Atty. Mabel L. Buted

Our country has been continuous in pursuing reforms to attract foreign investments and to ease the doing of business in the Philippines. We have recently seen the removal of the minimum number of incorporators to establish a corporation, the digitalization and streamlining of the registration process and requirements, the liberalization of foreign participation in some sectors, and the decrease of our corporate income tax.

The reforms are focused on the aspect of starting a new business. Not much has been said about simplifying the process and procedures in closing one.

Business closure in the Philippines is a long and tedious process. A company or even a sole proprietor will have to deal with various government agencies – barangay, LGU, BIR, and SEC. Other government agencies like SSS, PhilHealth and PAG-IBIG will also have to be notified.

Dissolution has too many repetitive requirements. Documents which are supposed to be available and are in the possession of these government agencies are required to be submitted. Examples of these documents are the Articles of Incorporation, and proofs of payment of the taxes paid, the tax returns and financial statements previously submitted by the taxpayer. Every government agency also has their own specific requirements which oftentimes are duplicates of each other. The requirements of the LGU and BIR may vary depending on the place or jurisdiction where the business of the company is registered.

There is also a mandatory tax audit by the LGU and the BIR. Before the SEC can proceed to close a business, tax audits should have been completed and tax clearances should have been issued. It usually takes years before the LGU and the BIR complete an audit and finally issue a tax clearance. So, a bottleneck occurs at this stage. Other government agencies (SSS, PhilHealth and PAG-IBIG) will not act on the application for dissolution until a Certificate of Dissolution is secured from the SEC.

In the previous administration, there was an attempt to simplify the BIR tax audit in the Ease of Paying Taxes Bill (HB No. 8942) by making the tax audit discretionary, and the decision to conduct one is based on a risk assessment evaluation. Unfortunately, the bill was not passed into law. This could have been a great way to overcome the bottleneck. So, I hope that this bill will find support under the present administration.

Because of this bureaucratic process, it is not a surprise to see companies which have been non-operational for so many years to still appear active in the government records. In effect, some could not just move on and start a new venture without settling at once the closure of an existing one.

This is a turnoff.

So, it is equally important for our government to provide all the assistance that it could give (by simplifying its procedures) to those who are closing their businesses, especially to those whose businesses went bankrupt and want to start again. This is an added value that we can offer to investors.

On the part of the taxpayer, it is also essential to know the procedures and requirements to terminate the life of a business, preserve its corporate and accounting records, and pay its taxes correctly and diligently, to facilitate the closure process later on.

Closure in any shape or form must not be difficult.