Partners Splitting a Philippine Company in Two: Dividing Customers, Staff, Trademarks, Stock and Debts

Choose the structure first: there is no corporate spin-off, only three practical ways to split

The first decision is structure, and it must be made before any asset moves, because the tax, contract and staff consequences of the three structures differ completely. The first and most common: one partner stays in the old company, the other incorporates a new one, the old company transfers the agreed assets, contracts and business line to the new one, and the staying partner buys the leaving partner's shares, or the leaving partner takes the assets in satisfaction of the share value. The second: both partners incorporate new companies, the old company transfers assets to each and is then liquidated, suitable where the old company carries historical debts or tax problems and neither wants it. The third: the old company becomes a holding entity with the two business lines placed in two subsidiaries, each partner holding a majority in one, which keeps a shared shell and suits cases where a common asset such as land or a licence cannot be divided.

The criterion is which items in the old company's name cannot be transferred, or are expensive to transfer. Business permits, tax registration, franchise rights, import licences, product registrations and government supplier accreditation are issued to a specific legal person and must be applied for afresh by a new company; long leases and bank facilities also tend to stay with the old company. So who stays is not a matter of pride but of economics, once the value of everything non-transferable is counted.

The second step is to write the chosen structure and a who-takes-what schedule into the separation framework agreement. It should cover: the structure; the allocation of each class of asset and contract; the principle for allocating staff; ownership of trademarks and accounts; sharing of debts; how the old company's shares are settled; a timetable; transition rules for the interim period, including who signs, how cash is controlled and which side new business belongs to; confidentiality and non-solicitation of customers and staff; and dispute resolution. Every later transfer document is an execution of this agreement. Splitting without it turns every step into a fresh argument. If the partners cannot even agree the framework, the problem is deadlock rather than separation; see breaking a shareholder deadlock.

The days around signing: freeze, count, transition rules, and three things not to do first

From the moment the split is decided until the framework is signed, the company goes into a freeze: no new major contracts, no large payments, no change to bank signatories, no moves on staff or customers. Then both partners count together: cash and bank balances, inventory, fixed assets, receivables and payables, every unperformed contract, every permit and licence, every trademark and online account, every employee and their contract. Both sign the count. It becomes the baseline for allocation and the evidence against a later claim that a batch of stock went missing.

Transition rules belong in the framework because the period from signing to the last transfer often runs for months while the company keeps trading. The usual provisions: major payments and new contracts need both signatures; the two business lines are accounted for separately from a stated date, with their income and expenses recorded apart; new customers are allocated by business line; staff remain as they are during the transition; and neither partner makes commitments in the company's name about the split. Separate accounting is especially important: it documents what each line earned during the transition and prevents a fight at the final settlement.

Three things are not done first. Do not tell customers yet. A customer who hears that a supplier is splitting waits or switches; once the structure and allocation are fixed, notify them jointly and once, stating who they deal with and how contracts continue. Do not move staff yet. Allocation must follow labor procedure, and privately telling certain employees to come with you becomes a poaching and illegal dismissal allegation later. Do not move inventory or equipment yet. Taking goods without a transfer document is, in law, misappropriation, even if you originally paid for them.

In these early days bring in a lawyer and an accountant together. The lawyer drafts the framework and the transfer documents for each track; the accountant values the assets, handles the tax treatment of the transfers and sets up the separate accounting. These two fees are most of the cost of a split, and the price of skipping them is several years of litigation.

Assets and contracts: transfers are taxable sales, assignments need consent, licences must be reissued

An asset moving from the old company to the new one is a sale for tax purposes, not an internal transfer: it needs an asset transfer agreement, a fair-value price, an invoice, and declaration and payment of the applicable taxes, which follow the tax authority's current rules and are not quantified here. Many splits try to save tax with an absurdly low transfer price; the result is a reassessment with penalties, and the undervalue itself becomes grounds for a creditor to allege a fraudulent transfer later. Have the accountant set the value by a defensible method and keep the working papers.

Handle each class differently. Inventory: counted and listed, delivered under the transfer agreement with signed receipt. Fixed assets and vehicles: a transfer agreement for equipment, and registration transfer at the transport authority for vehicles. Receivables: assignable, but the debtor must be notified in writing of the new payee, or a customer who pays the old company leaves you with nothing to collect. Prepayments and deposits, such as the landlord's deposit or supplier advances: usually not transferable directly, either refunded and re-paid or varied by a tripartite agreement.

Contracts are harder than assets because there is a counterparty. Customer, supplier and distribution contracts moving to the new company generally require the counterparty's written consent, either by a tripartite assignment or by the new company signing afresh. Many contracts prohibit assignment without consent, and if the new company simply starts performing, the counterparty may refuse payment or terminate. Leases are the clearest case: moving an office or shop lease to the new company requires the landlord's consent, and landlords usually require a new deposit, a new lease or at least a variation agreement. If the landlord will not cooperate, see when a landlord moves to end a commercial lease.

Licences and registrations do not transfer. Business permits, tax registration, import licences, product registrations, franchise rights and government supplier accreditation are issued to a specific legal person, and the new company must apply from the beginning. The timetable therefore turns on the new company obtaining the licences it needs to operate the line, before which it cannot lawfully run that business. This is the economic value of staying in the old company: the staying partner re-applies for nothing. Incorporating the new company follows the ordinary route, and the choice of vehicle is discussed in sole proprietorship, partnership or corporation.

Staff: people do not transfer like assets; use a tripartite agreement with tenure recognized, or termination and rehire

Employees cannot be listed on the asset schedule and moved with the business. Every employee going to the new company is, in law, ending employment with the old company and starting employment with the new one, and there are only two ways to do it. The first is a tripartite agreement: the old company, the new company and the employee sign a transfer under which the employee voluntarily moves, the new company recognizes full tenure with the old company and offers terms no lower than before, and the old company owes no separation pay because there is no loss of employment. This is the usual and cheapest route, but it depends on consent; an employee who declines cannot be transferred by force.

The second is termination and rehire: the old company terminates for an authorized cause with separation pay and final pay, and the new company hires the person as a new employee. It is expensive, and if the new company hires exactly the people the old company just dismissed to do the same work, the labor authorities will treat the termination as a sham and tenure will count anyway. Use it only where the employee prefers to collect separation pay before joining the new company.

An employee who wants to join neither side: if the position has disappeared from the old company because the line moved, the old company must proceed under redundancy or closure of establishment with full notice, reporting and separation pay; the rules are in final pay and separation pay. If the position still exists in the old company, the employee stays there and cannot be let go for being on the wrong side. Nationality, personal loyalty or which partner someone sided with can never be the allocation criterion, or discrimination and illegal dismissal complaints follow.

Foreign employees are a separate track. A foreign employee's work visa and employment permit are issued in the old company's name; moving to the new company means a fresh permit and visa application with the new company as employer, not a change of employer name, and until the new permit is approved the person cannot lawfully work for the new company. How a change in the employing entity affects the visa is in does a work visa survive a change in the employer. Build this into the timetable; it is usually the slowest part of the whole split.

Finally, every transferring employee's social security, health and housing fund accounts must be moved to the new employer, and unused leave and the proportionate share of year-end benefits earned at the old company must be either paid out at transfer or assumed in writing by the new company. Miss these and they return months later as labor complaints.

Trademarks, domains, social accounts and customer data: whoever is on the register owns it

Who owns the trademark depends on the name on the certificate, not on who thought of it. A mark registered to the old company stays with the old company unless an assignment is recorded with the intellectual property office; until then the new company is using someone else's mark. A mark registered to a partner personally belongs to that person, who must either license it to the company or assign it; it is never automatically the company's. Where both companies want the same brand, the usual solutions are one side taking the mark and the other a time-limited licence, or a division by product class or territory, but sharing a brand almost always causes trouble in the long run, so separate if you can. The registration and ownership rules are in trademarks in the Philippines: what they are and how to register.

Domains, websites, social media accounts, marketplace shop accounts and payment accounts are, in practice, owned by whoever controls them: the login, the verification phone, the registrant of record. The framework should list every account and its allocation, with a handover method and date; at handover the registered email, phone and administrators are changed and the recipient confirms. Marketplace shop accounts are usually tied to the business permit, so moving one to the new company means a change of registered entity under the platform's rules or a new shop; platforms do not always allow a direct transfer.

Customer data is where splits most often go wrong. Customer lists, contact details and transaction records are subject to Philippine data protection rules, and the fact that someone considers them their customers does not permit copying the database to the new company. The lawful approach is to determine which customers' data moves by business line, state it in the transfer agreement, and notify customers of the change of controller where required. A partner who copies everything exposes themselves to claims for breach of data protection duties and unfair competition.

Lastly, the company's records: books, original contracts, tax files and personnel files stay with the old company, but the new company has a legitimate need to inspect and copy what relates to the business it took over. The framework should state which documents are provided as copies, which as originals, and when.

Debts, tax and the fate of the old company, and how we help

Debts cannot be allocated privately between partners, because the creditors have not agreed. What the old company owes to banks, suppliers and the landlord remains the old company's debt even if the framework says the new company will bear it. To move a debt in law, the creditor must consent in writing to the new company assuming it, or the new company pays it off and recovers from the old company or the other partner. In practice: list every debt, pay what can be paid before the split, seek creditor consent for each remaining item, and leave anything the creditor will not release with the old company, netting it into the share settlement. Watch personal guarantees: a partner's personal guarantee of a company loan does not end with the split; either the bank substitutes a guarantor or the agreement provides for the guarantor's recourse.

Tax has three parts. Declare and pay the taxes on each asset transfer when it happens, not at year end. Keep the transition-period separate accounting robust enough to support the final settlement and to survive the tax authority's related-party scrutiny. And if the old company is to be dissolved, it must first complete tax clearance, a long process that surfaces every historical issue the company ever had; see closing a Philippine company. Where the old company survives, the leaving partner's shares must be formally transferred or repurchased, with the procedure and tax in share transfer procedure and taxes; where the staying partner cannot fund the share price, taking assets in satisfaction is a common solution, structured as in when a partner demands a buyback you cannot fund.

When every transfer is complete, send one joint formal notice to customers, suppliers and staff explaining what each company now handles and whom to contact, and update the old company's shareholder and director records with the regulator. Then have counsel prepare a completion confirmation signed by both partners, recording that all obligations under the framework are discharged and neither has further claims. It is the only document that prevents the old account being reopened years later.

YIXING International Travel (SEC Reg. No. CS202009551, Bureau of Immigration accredited agency CA-202624381-1) supports Chinese-invested companies in the Philippines through our company setup and share change services: comparing and selecting the split structure, incorporating the new company and applying for its licences, filing the tax declarations on asset transfers, updating the old company's shareholding and records, re-applying for foreign employees' permits and visas with the new company as employer, and following up tax clearance if the old company is dissolved. We are a private consultancy, not part of any government office, and we do not replace a lawyer or a certified public accountant; the framework and transfer documents are drafted by licensed counsel, and valuation and tax treatment are handled by a CPA. If you and your partner have decided to split, send us the asset list, contract list, staff list and your preliminary allocation, and we will map the structure and the timetable first. For your specific case consult a licensed lawyer; this article is not legal advice.