As common as it gets, or is it really? Common legal issues of MSMEs in the Philippines

As common as it gets, or is it really? Common legal issues of MSMEs in the Philippines

Legal & Compliance

Patricia Koh

Patricia Koh

23 Nov 2021, 10:30 — 5 min read

As per the 2020 MSME Statistics provided by Philippine Statistics Authority (PSA), 99.51% of business enterprises operating in the country are MSMEs. By definition, MSMEs are micro, small and medium enterprises. They play a vital role in shaping the Philippine economy by creating and providing job opportunities. 

 

However, starting and running an enterprise is no easy feat. So, here are the common legal issues faced by MSMEs in the Philippines.

 

Intellectual Property

The term “intellectual property” is defined as the work or invention which is the product of one’s innovation. This includes the following: (a) Copyright and Related Rights; (b) Trademarks and Service Marks; (c) Geographic Indications; (d) Industrial Designs; (e) Patents; (f) Layout-Designs (Topographies) of Integrated Circuits; and (g) Protection of Undisclosed Information.

 

As such, this is protected by law under Article XIV, Section 13 of the 1987 Constitution of the Philippines.

 

The State shall protect and secure the exclusive rights of scientists, inventors, artists, and other gifted citizens to their intellectual property and creations, particularly when beneficial to the people, for such period as may be provided by law.

 

 

But, majority of MSMEs lack the understanding about the laws and policies for intellectual property which may cause business loss, copyright infringement of others and of one’s own, unlawful reproduction of brands, and piracy of original works.

 

Filing of Taxes

Tax is a necessity for the government to function and operate as taxes provide a symbiotic relationship between the State and its citizens—where the taxpayer receives the benefits and protection in return for his contributions.

 

Keeping up with taxes could be burdensome as there are numerous laws that governs it and recent changes being made such as Tax Reform for Acceleration and Inclusion (TRAIN) Law or RA No. 10963 which aims to restructure the taxation system.

 

By not being up to date or with overall disregard of the regulations and process of taxation, this may result in failure to file taxes on time or none at all. This will make the process more costly and lengthier, and could also be considered as a criminal offense which is known as “tax evasion”.

 

Shareholder Agreements

Trust is easier established in personal relationships because of the different types of partnership agreements when dealing with businesses. By not providing a formal agreement with a shareholder of their rights and responsibilities, it increases the grey areas where uncertainties and doubts may arise. More so, when there is a profound existence of misunderstanding and differences within the partnership.

 

Employee Status

Informal hiring process, although not recommended, is normally done with startup companies and small businesses where the employment relationship is not clear, such as the employees’ rights, responsibilities and their status: (a) regular; probationary, fixed-term and project-based.

 

But, by not determining the correct type of the nature of their employment, this increases problems for the business as it may lead to labor complaints because of the unlawful employment practices by the employer and violation of the rights of employees being protected by the law.

 

Employee Termination

As provided for in the Labor Code, the termination must be done by an employer for just causes or circumstances authorized by the law. If for unlawful reasons such as discrimination, wrongful termination occurs which violates the guidelines and rules set forth within the law.

 

An understanding of these legal issues is essential for MSMEs to cement their business.

 

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