Pros and cons in owning property through a corporation

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This article was originally published on August 17, 2018 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

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AT A GLANCE:

When investing in a property, careful consideration of the ownership structure is crucial. Buying the property directly or through a corporation each has its own advantages and disadvantages. Needless to say, it is important to weigh these pros and cons before making a decision, as property investment can involve a significant financial commitment. Thus, it is best to have an informed choice before making such a purchase.

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Advantages of ownership through a corporation

 

Limited Liability. A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. There are, however, certain instances in which personal liability may arise. (Satuito v.  People, G.R. Nos. 239523-33, 239542 & 239554-61 & 239657-68, May 19, 2025.)

 

This separate corporate personality therefore shields personally-owned assets from any liability which may otherwise be incurred only by the corporation who owns the property.

 

Easy transfer by subscription of shares. Since the corporation owns the property, one would have to acquire shares of stocks in order to acquire interest over said property. This would be much easier because anyone who wish to acquire interest over the property would not have to deal anymore with the cumbersome process of property registration before the Registry of Deeds. Stock transfer is enough, and all it needs is for such stock transfer to be recorded in the books of the corporation.

 

Control by the Board of Directors. Despite the fact that various persons may have indirectly acquired an interest over the property by subscription to shares of stock, one may still retain the power to manage the property owned by the corporation by being a member of the Board of Directors. Section 22 of the Revised Corporation Code states that the Board of Directors or Trustees shall exercise the corporate powers, conduct all business, and control all properties of the corporation.,

 

Disadvantages of ownership through a corporation

 

Higher income tax rate for a corporation. Section 27(A) of the National Internal Revenue Code, as amended by Republic Act No. 11534 provides that for the rate of Income tax on Domestic Corporation, except as otherwise provided in this Code, an income tax rate of twenty-five percent (25%) effective July 1, 2020, is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation, as defined in Section 22(B) of this Code and taxable under this Title as a corporation, organized in, or existing under the laws of the Philippines. Provided, That corporations with net taxable income not exceeding Five million pesos (P5,000,000.00) and with total assets not exceeding One hundred million pesos (P100,000,000.00), excluding land on which the particular business entity’s office, plant, and equipment are situated during the taxable year for which the tax is imposed, shall be taxed at twenty percent (20%).

 

Applicability of the Minimum Corporate Income Tax. A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year: Provided, That effective July 1, 2020 until June 30, 2023, the rate shall be one percent (1%). (Section 27(E) of the National Internal Revenue Code, as amended by Republic Act No. 11534)

 

Higher tax rates on transfer of shares. Since it is the corporation who owns the property, anyone who would wish to acquire an interest on said property may do so by subscribing to shares of stock in the corporation. Under Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, however, capital gains on transfer of shares is now taxed at a fixed rate of 15%, as opposed to capital gains tax of only 6% flat rate that individuals incur in transferring ownership over the property itself.

 

Additional costs. Forming a corporation will necessarily entail additional cost for processing and payment of fees.

 

Weighing in on the pros and cons

 

In sum, forming a corporation for the purpose of buying properties has its own pros and cons. However, depending upon the circumstances, one may take full advantage of the pros and minimize the cons. It must be noted that the cons mentioned above focus more on possible tax treatment and additional cost. Therefore, the following should be taken into consideration.

 

If the property to be purchased is not expected to earn profits, it would be more advisable to form a corporation that would purchase and own the property. Since no profits are expected, there would be no reason to worry about being assessed huge amounts of taxes. There would also be no expectation of dividend declaration that may subject an individual shareholder to income tax.

 

Forming a corporation would even provide a shield that would prevent the stockholders’ individual properties from being subjected to liability, provided that there are no fraudulent transactions and/or bad faith in dealing with third persons. This is an advantage individual property owners will never have.

 

Given the advantages and disadvantages of owning a property through a corporation, one has to give serious thoughts as to the ownership structure. It is so because the simple difference in its ownership can spell the difference between saving big, or paying additional costs.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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