Tourism and hospitality are significant contributors to the economy of the Philippines, representing a vital sector that generates income, employment, and foreign exchange earnings. The business landscape in this industry is shaped by the different forms of business organizations, which determine how companies operate, their legal obligations, and their financial structures. In this lesson, we will explore tourism and hospitality as a trade, examine the various forms of business organizations that operate within these sectors, and discuss the key features of business structures relevant to the Philippine context.
1. Tourism and Hospitality as a Trade
1.1 Defining Tourism and Hospitality as a Trade
Tourism and hospitality encompass a wide range of activities, including accommodation, food and beverage services, transportation, travel services, and entertainment. As a trade, these industries involve the commercial exchange of services that cater to travelers and tourists. In the Philippine context, tourism and hospitality represent a major sector that not only boosts the economy but also promotes cultural exchange, fosters environmental conservation, and creates job opportunities.
The Department of Tourism (DOT) and related government agencies regulate the tourism and hospitality sectors, ensuring that businesses adhere to national laws and promote the Philippines as a premier destination. The sector includes a variety of businesses, from large hotel chains and airlines to small-scale tour operators and family-owned restaurants.
1.2 Contribution of Tourism and Hospitality to the Philippine Economy
The Philippine Statistics Authority (PSA) reports that the tourism industry contributes significantly to the country’s Gross Domestic Product (GDP). In 2019, prior to the COVID-19 pandemic, the industry accounted for 12.7% of the GDP, highlighting its importance in national economic development. Tourism also creates substantial employment opportunities, providing jobs in both urban and rural areas. The hospitality sector alone is a major employer, encompassing jobs in hotels, restaurants, tour operations, and transportation.
Key Areas of Tourism and Hospitality Trade:
- Accommodation: Hotels, resorts, and guesthouses cater to the lodging needs of tourists and travelers.
- Food and Beverage: Restaurants, bars, and cafes serve local and international cuisine, contributing to the cultural experience of tourists.
- Travel and Transportation: Airlines, buses, ferries, and taxis provide transportation services to tourists within and outside the country.
- Leisure and Recreation: Tour operators, amusement parks, cultural heritage sites, and ecotourism activities offer recreational experiences for tourists.
- Tourism Services: Travel agencies, tour guides, and destination management companies facilitate the travel and experience of tourists.
1.3 Legal Framework for Tourism and Hospitality Trade
Several laws govern the tourism and hospitality industries in the Philippines. Key legal instruments include the Tourism Act of 2009 (Republic Act No. 9593), which strengthens the promotion and regulation of tourism, and the Consumer Act of the Philippines (Republic Act No. 7394), which ensures consumer protection in trade, including the tourism and hospitality sectors. Businesses must comply with these regulations to ensure ethical practices, protect consumer rights, and contribute to the sustainable development of tourism.
2. Forms of Business Organization
A critical aspect of operating a business in the tourism and hospitality industries is choosing the right form of business organization. The structure of a business affects its legal status, management, ownership, liability, and taxation. In the Philippines, the following are the most common forms of business organizations:
2.1 Sole Proprietorship
A sole proprietorship is the simplest form of business organization, where the business is owned and operated by a single individual. In this structure, the owner has complete control over the business but also bears unlimited liability—meaning that personal assets are at risk if the business incurs debts or liabilities.
- Example in Tourism and Hospitality: A local restaurant or a small bed-and-breakfast in a tourist destination like Boracay or Palawan may be operated as a sole proprietorship. The owner manages the day-to-day operations, and the business is often closely tied to the owner’s personal finances.
Key Features:
- Ownership: Owned by one individual.
- Liability: The owner has unlimited liability, meaning personal assets can be used to cover business debts.
- Taxation: The business income is taxed as personal income of the owner.
- Ease of Formation: Simple and easy to establish, with fewer regulatory requirements.
- Control: The owner has full control over all decisions.
2.2 Partnership
A partnership is a business organization where two or more individuals agree to share ownership, management responsibilities, profits, and losses. Partnerships can either be general partnerships, where all partners have unlimited liability, or limited partnerships, where one or more partners have limited liability based on their investment in the business.
- Example in Tourism and Hospitality: A group of entrepreneurs may form a partnership to operate a boutique hotel or a restaurant chain, with each partner contributing capital and expertise.
Key Features:
- Ownership: Owned by two or more individuals (partners).
- Liability: In a general partnership, all partners have unlimited liability. In a limited partnership, some partners have limited liability.
- Taxation: The partnership does not pay taxes directly; profits are passed through to the partners, who report them on their personal tax returns.
- Ease of Formation: Relatively easy to establish, but requires a formal agreement.
- Control: Shared decision-making among partners, though roles can vary depending on the partnership agreement.
2.3 Corporation
A corporation is a more complex form of business organization, recognized as a separate legal entity from its owners (shareholders). Corporations enjoy limited liability, meaning that shareholders are not personally liable for the debts and obligations of the corporation beyond their investment in the company. Corporations can be either stock corporations (for-profit) or non-stock corporations (non-profit).
- Example in Tourism and Hospitality: Large hotel chains, airlines, and travel agencies in the Philippines often operate as corporations. Examples include companies like Cebu Pacific Air or the Jollibee Group, which operates hotel and restaurant businesses.
Key Features:
- Ownership: Owned by shareholders who invest in the corporation through stocks.
- Liability: Shareholders have limited liability; they are only responsible for debts up to their investment in the company.
- Taxation: Corporations are taxed as separate legal entities, and profits distributed to shareholders (in the form of dividends) are also subject to tax.
- Ease of Formation: More complex to establish and requires registration with the Securities and Exchange Commission (SEC).
- Control: Managed by a board of directors elected by shareholders, with daily operations run by officers.
2.4 Cooperative
A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit. In a cooperative, members contribute capital, share management responsibilities, and distribute profits based on participation rather than capital investment. Cooperatives are common in rural areas where small-scale tourism and hospitality businesses are community-owned.
- Example in Tourism and Hospitality: In rural tourism areas, local communities may form cooperatives to manage eco-tourism operations, such as guided tours, guesthouses, and local crafts businesses.
Key Features:
- Ownership: Owned by members who contribute to the cooperative.
- Liability: Members have limited liability.
- Taxation: Cooperatives enjoy tax incentives and exemptions under Republic Act No. 9520 (Philippine Cooperative Code of 2008).
- Ease of Formation: Requires registration with the Cooperative Development Authority (CDA) and follows cooperative principles.
- Control: Operates on the principle of democratic control, where each member has one vote, regardless of capital contribution.
2.5 Limited Liability Company (LLC)
While not commonly used in the Philippines, the Limited Liability Company (LLC) structure is an option in some jurisdictions, offering a blend of partnership and corporation features. In an LLC, owners (called members) enjoy limited liability, similar to a corporation, but the business can be managed more flexibly like a partnership.
- Example in Tourism and Hospitality: International investors operating in the Philippine tourism industry may set up LLCs in their home countries to invest in joint ventures or partnerships with local businesses.
Key Features:
- Ownership: Owned by members.
- Liability: Limited liability for members.
- Taxation: Income is typically passed through to members and taxed at the individual level (depending on jurisdiction).
- Ease of Formation: In some jurisdictions, LLCs are easy to form and offer flexibility in management and operations.
- Control: Members have flexibility in managing the company, either directly or by appointing managers.
3. Key Features of Business Structures
The choice of business structure has significant implications for ownership, liability, taxation, and control. Below are some key features to consider when deciding on a business structure for tourism and hospitality ventures in the Philippines.
3.1 Ownership and Control
- Sole Proprietorship: The owner has full control over decision-making but bears all risks personally.
- Partnership: Control is shared among partners, depending on their agreement. In a general partnership, all partners are involved in management, while in a limited partnership, some partners may be silent investors.
- Corporation: Control is vested in a board of directors elected by shareholders. Daily operations are managed by officers, such as the CEO or president, appointed by the board.
- Cooperative: Control is democratic, with each member having an equal vote in decision-making.
3.2 Liability
- Sole Proprietorship: The owner has unlimited personal liability for business debts and obligations.
- Partnership: General partners have unlimited liability, while limited partners are liable only up to their capital contribution.
- Corporation: Shareholders enjoy limited liability and are only liable up to the amount they invested in the company.
- Cooperative: Members have limited liability, meaning they are not personally responsible for debts beyond their share in the cooperative.
3.3 Taxation
- Sole Proprietorship: Business income is taxed as personal income of the owner.
- Partnership: Partnerships are pass-through entities, meaning profits and losses are passed on to the partners, who report them on their individual tax returns.
- Corporation: Corporations are taxed as separate legal entities, with corporate income taxes applied to profits. Dividends distributed to shareholders are also taxed.
- Cooperative: Cooperatives enjoy certain tax incentives and exemptions, especially when they operate for the benefit of their members and comply with the Cooperative Code.
3.4 Complexity and Costs of Formation
- Sole Proprietorship: Easy and inexpensive to establish, with fewer legal formalities.
- Partnership: Requires a partnership agreement and registration with the Department of Trade and Industry (DTI) or Securities and Exchange Commission (SEC).
- Corporation: More complex to set up, requiring SEC registration, a board of directors, and compliance with corporate governance rules.
- Cooperative: Requires registration with the CDA and must follow cooperative principles. Members must actively participate in the cooperative’s operations.
Conclusion
The tourism and hospitality sectors in the Philippines offer a wide range of opportunities for businesses, from small-scale sole proprietorships to large corporate ventures. Understanding the different forms of business organizations and their key features—such as ownership, liability, taxation, and control—is essential for entrepreneurs and investors seeking to operate in these industries.
Choosing the right business structure depends on the scale of operations, the level of personal liability an owner is willing to assume, the ease of formation, and tax considerations. By carefully assessing these factors, businesses can navigate the legal and regulatory environment of the Philippines more effectively, contributing to the growth and sustainability of the tourism and hospitality industries.
