How to Close a Business in the Philippines

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Financial reverses, shift to a different industry, migration to another country, incessant problems are just some of the reasons why some people close their business.  Whatever the reason is, it is always a painful decision to raise your hands in defeat and give up on your business venture.  Nevertheless, one cannot just pack up and leave.  There are legal processes that must be followed in order to close or retire a business.  Failure to do so will add more headaches such as continued assessment of national and local taxes and other financial obligations to the government.  For this reason, the following must be done in order to legally close a business in the Philippines.

Termination of Employees

            Necessarily, employees will have to be terminated.  Notice of closure and termination must be given to the employee and the Department of Labor and Employment (DOLE) at least thirty (30) days before the intended date of termination.  Furthermore, if the closure is not due to business losses, the corresponding separation pay must be paid to the employees.

             Failure to observe this process will open up the company for an illegal dismissal lawsuit.

Notice to the BIR, SSS, Philhealth and Pag-ibig

            It must be emphasized that the notices of closure must also be given to the Social Security System (SSS), Philippine Health Insurance Corporation (Philhealth), Bureau of Internal Revenue (BIR) and the Home Development Mutual Fund (Pag-ibig). In fact, one must also secure a BIR clearance for this purpose.

             Failure to notify and/or secure clearances from these government agencies will result in the continued assessment of the company for its mandated contributions.  Hence, the BIR will still assess taxes based on the presumed income of the company.  Further, the SSS, Philhealth and Pag-Ibig will still consider the company as active and presume that the company is delinquent in its remittances.  Hence, the company might be surprised to still be assessed these contributions four years after its closure.

Notice and Clearances from other Government Agencies

             If your company has been granted a license by other government agencies such as the Philippine Export Zone Authority (PEZA), Board of Investments (BOI), etc., notice of the closure must be furnished to these agencies.  Some agencies will require the submission of further documents in order to issue a clearance of closure.

Retirement of Business with the Local Government Unit

             In doing business, one needs to secure a business or mayor’s permit in the city where the business is located.  In the same vein, one must also retire his business with the city.  As such, the notice of closure and other documentary requirements will have to be submitted to the city that issued the business permit.

Closure of the Business with the DTI or SEC

             If the business is a sole proprietorship, then the closure must also be filed with the Department of Trade and Industry (DTI).

             If it is a corporation, then the corporate term may either be shortened or the corporation dissolved.  Either way, the documentation for both processes must be filed with the Securities & Exchange Commission (SEC).

             As can be gleaned above, closing the business is a very tedious process and may take quite some time ranging from six (6) months to a year. Surely, it seems like kicking a dead horse.  However, it is a bureaucratic reality which Filipino businessmen have to live with.  Otherwise, the fate for non-compliance will be more painful than closing the business itself.

             Nicolas & De Vega Law Offices (NDV Law) is a full-service firm located at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, Pasig City, Metro Manila, Philippines. You may e-mail us at [email protected] or visit our website .