Closing a Sole Proprietorship Business in

the Philippines
SEPTEMBER 8, 2012  BY VICTORINO ABRUGAR  

A single or sole proprietorship is a type of business based on ownership that

is owned by a single person who has full control and authority on his or her
business. The owner is called proprietor or proprietress and he or she owns
all the assets and equity of the business. The proprietor is solely responsible
for all the liabilities and obligations of the company. All profits of the
proprietorship business are enjoyed by the proprietor, but he or she also
absorbs all the company’s losses.

In tax and legal sense, the proprietor and his business is considered as one
entity and is also considered as one taxpayer, unlike a corporation,
partnership or cooperative which are considered a separate legal entity and a
separate taxpayer from their owners. The proprietorship business and its
owner proprietor share the same TIN (Taxpayer Identification Number). On
the other hand, corporations, partnerships, and cooperatives use a separate
TIN from their owners.

A proprietorship business might be ceased for many reasons. It could be

voluntary or involuntary. Voluntary closure of a business happens when the
owner decides to close the business on his or her will due to reasons, like
ceasing the business to avoid incurring more losses when the business is not
financially performing well or cancelling the proprietorship business due to
transformation to partnership or corporation. In a voluntary closure, the
business owner usually complies with the government requirements on
business cessation or cancellation of registration.

On the other hand, involuntary closure of a business usually happens when

the government or a court has ordered to cancel the business registration of a
business due to non-compliance with the regulations. Other reasons could the
death of the owner or the incapacity of the owner to do business, like for
example, when the owner or the business becomes bankrupt.

In this article, we assume that the proprietor is closing his or her business
voluntarily.
So how do we close a sole proprietorship business in the Philippines? The
rule of the thumb for closing a business is to formally or compliantly close the
business in the government agencies or offices where it was registered.

A sole proprietorship business is usually required to register with the following

offices:

– Local Barangay Office – for barangay clearance.

– Department of Trade and Industry (DTI) – for business trade name
registration.
– City or Municipal Office – for its Mayor’s license or permit to operate.
– Bureau of Internal Revenue (BIR) – for getting official receipts (invoices) and
filing tax returns.
– Social Security System (SSS) – for complying with the Social Security (SS)
Law.
– Philippine Health Insurance Corporation or PHIC (Philhealth) – for
complying with the National Health Insurance Act (RA 7875 / RA 9241).
– Home Development Mutual Fund or HDMF (Pag-IBIG Fund) – for complying
with the RA 7742.
– Department of Labor and Employment (DOLE) – for employers with 5 or
more employees.
– Other offices that a sole proprietorship business is required to register to get
special license to operate, such as the Bangko Sentral ng Pilipinas (BSP) for
pawnshops and money changer businesses.

Unlike corporations and partnerships, proprietorship businesses don’t need to

be closed with the SEC office since they are not registered with the
commission in the first place. Thus, we can basically say that proprietorship
businesses are easier to close than dissolving partnerships and corporations.

To voluntarily close or cancel the registration of your proprietorship business,

you can start by getting a clearance from the Barangay Office, where your
business is located. Then you can voluntarily cancel your business name
registration with the DTI and with the other offices, where your business is
registered.

Among the government offices to comply, the BIR is probably the most
difficult, especially if you have delinquent taxes or unpaid tax obligations that
must be settled with the Bureau.  Before the BIR issues clearance, the bureau
conducts an audit to the business to assess and ensure that such business
has paid all its internal revenue taxes and other fees due to the government.

The business should also be cleared with its obligations with other offices. For
example, the City Office has to ensure that the business has paid all its local
business taxes or licensing fees due to the city. The SSS, Philhealth or Pag-
ibig also have to make sure that you have fulfilled your obligation as an
employer who is mandated to remit benefits or contributions for your
employees.

To check the list of requirements for business closure with the different
government offices, please read our post on “how to close a business in the
Philippines“.