GHH Law Primer No. 1

GHH Law Primer No. 1

You can download the primer here. We reproduce the text below.

COVID-19 changed the financial landscape for everyone – from business tycoons, to rank and file employees. In these challenging times, where job lay-offs and negative income statements have become the norm, starting a business is now even more nuanced, especially at the legal front.

1. Check the Location and Industry

There are two (2) kinds of quarantine in the Philippines: Enhanced Community Quarantine (“ECQ”), and General Community Quarantine (“GCQ”). Places under ECQ are subject to stricter regulations than those under GCQ. A business may or may not be allowed to operate, depending on its industry, and the kind of quarantine imposed at its location.[1]

In general, businesses providing essential goods and services, e.g., food, health, power, and telecommunications, among others, are allowed to operate within areas subject to ECQ. The scope of authorized business expands if ECQ is downgraded to GCQ. For example, businesses in the mining, manufacturing, architecture, and real estate industries, among others, may operate in areas under GCQ, but not in areas under ECQ.

Accordingly, check the following before starting, or operating a business: [a] the kind of quarantine imposed within the area; and [b] the industry of the business. If the kind of quarantine permits operation of the chosen industry, it is safe to start the business.

2. Choose the Medium

Businesses may be conducted in the Philippines through the following media:

[a] sole proprietorship;

[b] partnership;

[c] corporation; or

[d] one person corporation.

Each medium has different features, which suit entrepreneurs depending on the goals, volume of government compliances, and potential capital infusion.

 

  • Sole proprietorships suit those who want to retain autonomy and decision-making, with the least amount of capital outlay, and the least number of government compliances. Sole proprietors may be held liable in their personal capacities.
  • Partnership suit those who want to leverage upon the skills and capital of like-minded individuals, with a common goal of obtaining a profit. This is the preferred medium for professionals. General partners may be held liable for partnership obligations, in their personal capacities.
  • Corporations suit those who want an efficient means of selling business stakes to potential investors, in the form of shares of stock. This is also the preferred mode of operation for businesses with massive capital outlays, such as conglomerates and multi-national companies. Decision-making is centralized in a board of directors. Stockholders are not liable for corporate debts, in their personal capacities.
  • One person corporations suit those who want to retain autonomy and decision-making, while taking advantage of a corporation’s separate personality. It is more cumbersome to maintain than a sole proprietorship due to reportorial, and other maintenance requirements.

The foregoing media have different taxation treatments and documentary needs. In addition, some industries have nationality requirements that must be strictly obeyed, to avoid prosecution under the Anti-Dummy Law. Ultimately, the responsibility of choosing a medium falls squarely upon the entrepreneur, who is in the best position to consider the finances and the goals.

3. Manpower Considerations

Entrepreneurs must seriously consider manpower volume, during the COVID-19 pandemic. While communications technology has largely permitted remote office work for employees, some jobs nevertheless require physical presence, especially those requiring actual points of sale, such as convenience stores and supermarkets. True enough, industry usually determines the permissible degree of reliance on electronic modes of doing business.

In this regard, the Department of Trade and Industry (the “DTI”), and the Department of Labor and Employment, jointly issued guidelines[1] on the prevention and control of COVID-19 in the workplace, for businesses that cannot afford complete cessation of physical attendance during qurantine.

  • Employees must wear masks at all times.
  • Prior to building entry, an employee must answer a health questionnaire, and undergo a temperature scan.
  • Equipment and vehicles must be disinfected.
  • Employees must observe one (1) meter physical distancing.
  • The workplace must be regularly disinfected.
  • Employers must provide soap, water, and sanitizers.
  • Employees are discouraged from eating in communal areas.

Other rules exist, in various modalities, but the core mandate remains the same: social distancing and disinfection protocols must be observed, in all aspects of business. Violations of the guidelines may expose employers to prosecution under Republic Act No. 11469, or the Bayanihan to Heal as One Act (the “Bayanihan Act”), which prescribes a criminal penalty of two (2) months imprisonment, and/or a fine ranging from Ten Thousand Pesos (PhP10,000.00) to One Million Pesos (PhP1,000,000.00).

4. Supply Chain Considerations

For the most part, supply transportation remains unaffected by COVID-19. Pursuant to IATF guidelines, cargoes may move freely, within and across areas placed under ECQ or GCQ.[2] The Philippine Ports Authority has also given trucks, truck drivers, and helpers, uhampered entry to, and exit from ports, subject to compliance with health and safety measures.[3]

Pursuant to the Bayanihan Act, the Department of Finance (the “DOF”) and the DTI gave financial incentives to entities dealing in[4] medical supplies[5], their raw materials, or their packaging materials. Regardless of country of origin, importations are currently exempt from import duties, taxes, and fees, including those imposed by the Bureau of Customs, and the Food and Drug Administration.

While supply transportation remains unhampered, entrepreneurs must nevertheless check whether supplies are actually in production. As discussed, ECQ and GCQ have repercussions on the operations of manufacturing entities.


[1] See Omnibus Guidelines on the Implementation of Community Quarantine in the Philippines dated April 29, 2020 (the “Guidelines”), promulgated by the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (the “IATF”).[1] See DTI and DOLE Interim Guidelines on Workplace Prevention and Control of COVID-19 dated April 30, 2020.

[2] Sec. 4(2), Guidelines.

[3] See PPA MC No. 14 s. 2020.

[4] Sec. 2.2, DTI and DOF JMC No. 2020-02. The incentives cover manufacturers or producers, suppliers of raw materials, manufacturers of packaging materials, and suppliers of raw materials for the packaging.

[5] Id., at Secs. 2.1 and 3.0.


Garcia Habacon and Han is a law firm in Quezon City, Metro Manila, Philippines.