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Q: I put up a business in 2002 and registered it with the BIR. After just six months, it went bankrupt. I did not file for bankruptcy; neither did I file any further tax returns for that business. I would like to know if there are adverse consequences to what I did, or what I failed to do. Will I have to pay penalties to the BIR? Also, will I be allowed to register a new business after what happened with my old one?

 

A:  You said your business went "bankrupt" but did not specify whether it merely lost its profitability, or if it also left a trail of creditors in its wake. You also did not state whether it was a corporation, a partnership, or a sole proprietorship. For each of these variables, the consequences are different.

If there were no creditors, then it's okay that you did not file for bankruptcy, or, as it is properly termed under our Insolvency Law, a petition to be declared in a state of suspension of payments (or a petition to be discharged from debts and liabilities).

However, if your company was a corporation or a partnership, you still should have asked for its dissolution at the Securities and Exchange Commission (SEC). Before the SEC gives its approval for you to dissolve, you'll have to submit a certification from the Bureau of Internal Revenue (BIR) that there are no taxes owed.

On the other hand, if your business was a sole proprietorship, the BIR will assume that it continues to be in operation until you notify them otherwise. Your failure to file your returns annually may have drastic consequences such as hefty fines or even imprisonment. In view of this, you might encounter difficulties if you try to register a new business.

Reeza Singzon is a lawyer specializing in civil, commercial, and labor law. Before becoming a lawyer, she worked in media for more than 10 years, writing and producing news programs for TV and working as an editor and columnist for a newspaper.