BARMM:

MANILA- The Bangsamoro Organic Law (BOL) will destroy the country and dismember its territories, a group of
constitutional experts and framers warned as they asked the Supreme Court to declare the landmark legislation
unconstitutional.

The plea "seeks to avert the destruction of the Republic of the Philippines, the dismemberment of its territory, the
fragmentation of its people, the despoliation of its natural and human resources, and the wreckage of its tripartite
system of government,” PHILCONSA said.

The petition questioned the creation of a Bangsamoro Autonomous Region (BAR) in Muslim Mindanao to replace
the existing Autonomous Region in Muslim Mindanao (ARMM).

PHILCONSA argued the 1987 Constitution only recognizes one autonomous region in Muslim Mindanao.

“When R.A. 11054 abolished the ARMM and created the BARMM, a new and distinct territorial and political
subdivision in lieu thereof, without first amending the Constitution, respondent’s legislative and executive
departments violated and/or amended Sec. 1, Art. X of the Constitution, without jurisdiction or authority, with grave
abuse of discretion tantamount to lack of and/or in excess of jurisdictions,” it said.

It added: “The legislative and the executive departments, creations of the Constitution, must observe and stand
beside the Constitution and not act above, defy or supplant it.”

According to the group, the creation of a Bangsamoro political entity is contrary to the Constitution which created
only provinces, cities, municipalities and barangays, and autonomous regions in Muslim Mindanao and the
Cordilleras, calling BAR an “interloper” or a “stranger.”

The group also called out the grant of legislative powers to the Bangsamoro parliament, such as the power to grant
tax exemptions and incentives, to create government-owned and controlled corporations, and to declare nature
reserves, aquatic parks, forests, watershed reservations and other protected areas – powers which are reserved to
Congress.

In addition, the group questioned a BOL provision giving the Bangsamoro parliament the power to enact laws
governing commercial and other civil actions not provided under the Code of Muslim Personal Law, as well as
criminal jurisdiction over minor offenses.

It noted that the Constitution only gives special courts like the Shariah court jurisdiction over personal, family and
property laws.

PHILCONSA also objected to the grant of powers to the Bangsamoro parliament to enter into trade relations with
foreign countries and to contract foreign loans.

Under the Constitution, the group said, these powers belong solely to the President.

PHILCONSA also said the BOL violates the equal protection clause for its provision allowing national taxes like
documentary stamp, donor’s and estate taxes to go straight to the Bangsamoro government, putting it at an
“unjustified advantage” over other regions.

It also found an issue with the creation of a Bangsamoro Economic and Development Council, which it said is contrary
to a constitutional provision declaring NEDA as the independent planning agency of the government.

Its other objections pertain to the creation of a separate flag for the Bangsamoro Government and the omission of
Lumads as among the Bangsamoro people.

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In the alternative, PHILCONSA suggested that Congress pass a law changing the name of ARMM to BARMM, including
additional territories the Moro Islamic Liberation Front desires in accordance with the law, and adding powers and
other provisions compatible with the Constitution and the laws.

BARMM must not be treated like a regular LGU

THE Bangsamoro Autonomous Region in Muslim Mindanao or BARMM has been described as a “radical
transformation” from its predecessor, the ARMM. The former is a creation of Republic Act No. 11054 or the Organic
Law for the Bangsamoro Autonomous Region in Muslim Mindanao (hereafter referred to as BOL), while the latter
came to be via the now superseded Republic Act No. 6734 as amended.

But while there are truly innovative features in the BOL, the promise of a revolutionary change depends heavily on
whether the polity can adopt a different view of the new regional government of the BARMM. From its traditional
classification as a regular local government unit (LGU) to an updated designation as a unique political subdivision of
the state. Crucially, a plain reading of Article X of the 1987 Constitution justifies such a paradigm adjustment.

Article X is essentially divided into two parts. Sections 1 to 14 are the first part covering regular LGUs such as
provinces, cities, municipalities and barangays. On the other hand, Sections 15 to 21 cover Autonomous Regions
only and refer specifically to Muslim Mindanao and the Cordilleras. Therefore, the regional government apparatus
for these two autonomous regions is a totally distinct constitutional prescription.

Furthermore, the Supreme Court in the case of Disomangcop vs. Datumanong [G.R. No. 149848, November 25, 2004]
ruled that:

“The idea behind the Constitutional provisions for autonomous regions is to allow the separate development of
peoples with distinctive cultures and traditions. These cultures, as a matter of right, must be allowed to flourish.”

More to the point, the Court also ruled that:

“The objective of the autonomy system is to permit determined groups, with a common tradition and shared social-
cultural characteristics, to develop freely their ways of life and heritage, exercise their rights, and be in charge of
their own business. This is achieved through the establishment of a special governance regime for certain member
communities who choose their own authorities from within the community and exercise the jurisdictional authority
legally accorded to them to decide internal community affairs.”

It is worth recalling that the purpose of the BOL is to fulfill the mandate of the Comprehensive Agreement on the
Bangsamoro (CAB) to strengthen regional autonomy for the Bangsamoro.

The CAB specifically provides that the relationship between the Central Government and the Bangsamoro
Government shall be asymmetric. This prescription aims to distinguish the Bangsamoro regional government from
other local government units. Meaning, its relationship with the national government should be fundamentally
different from the relationship of other local governments to the central bureaucracy.

Whilst the word “asymmetric” to describe the relationship of the national government and the Bangsamoro
government is not found in the BOL, the statute itself is proof that the Bangsamoro regional governance
infrastructure vastly differs from the current local government structure under the Local Government Code of 1991.

First of all, the BOL establishes a ministerial regional government structure with a strong mandate for a disciplined
political party system. This framework is unique to the Bangsamoro. Critically however, when employed for the
purpose it was designed for, the parliamentary structure makes maintaining good governance over region more
probable.

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Moreover, the BOL also institutes a robust fiscal autonomy regime, the centerpiece of which is the block grant. This
fiscal framework is also unique to the Bangsamoro and when utilized properly and strategically, can indeed lead the
Bangsamoro to genuine self-governance.

Therefore, the word “asymmetric” may be absent in the BOL, but the regional governance structure established by
this law is certainly distinct from the regular local government apparatus. The political and fiscal autonomy of the
Bangsamoro government is clearly more substantial than other local governments.

More critically, the creation of various intergovernmental relations (IGR) bodies such as the National Government-
Bangsamoro Government Intergovernmental Relations Body, the Philippine Congress-Bangsamoro Parliament
Forum, Fiscal Policy Board, Joint Body for Zones of Joint Cooperation, Infrastructure Development Board, Energy
Board and Sustainable Development Board are the features of the BOL which clearly demonstrate that the
Bangsamoro government has an elevated status over other local governments in terms of its relationship with the
central government.

Through these IGR mechanisms the Bangsamoro government can be at par with the national government when it
comes to the decision-making process involving particular development and governance mandates. This is so
contrary to the status of other local governments where most often than not, decisions have been made for them
by the national government.

Furthermore, the BOL specifically commands that the Bangsamoro government shall be represented in the
departments, offices, commissions, agencies and bureaus of the national government that implement and enforce
policies, programs, and projects of the national government in the Bangsamoro Autonomous Region.

Such a statutory command essentially characterizes the Bangsamoro government as a partner of the central
bureaucracy within the Bangsamoro region. Contrary to the treatment of local governments as mere agents of the
national government.

Crucially, given its access to the block grant, it is paramount for the Bangsamoro government to have a firmer claim
on its autonomy than the regional government it is set to replace. Otherwise, this vastly increased fund transfer may
also fail to deliver the development outcomes many of the people in the Bangsamoro region are hoping for.

In sum, the innovations in the BOL cited here require both the national government and the Bangsamoro community
to view the new BARMM regional government not as a regular LGU. And only when both sides make this adjustment
will genuine and meaningful regional autonomy be truly achieved.

By design, the fiscal autonomy provisions and the IGR mechanisms in the BOL are venues for the Bangsamoro
government to assert true autonomy against the traditional domination of the central government. But if the new
generation of Moro leaders will not see themselves as equals with the national politicians and bureaucrats, then the
pathologies of the past regional regime will persist.

Correspondingly, the national government must now fully internalize this judicial admonition in the Disomangcop
case:

“Regional autonomy refers to the granting of basic internal government powers to the people of a particular area or
region with least control and supervision from the central government.”

Without a doubt, a business-as-usual frame of mind will really not make the BARMM any better than ARMM.

12 Federalism Pros and Cons

Federalism is a system of government where power is divided between several different entities. Each entity is given
the power to share control over the same geographic region as another entity. In the United States, a system of

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Federalism is in place because laws can be passed by a local government, the state government, or the national
government.

This prevents one solitary body from being able to control every aspect of governing over a population. It also means
there are tiered laws and systems that can be confusing for certain geographic regions when laws may conflict. Take
the marijuana legalization that has occurred in the US. Recreational marijuana may be legal in some states, but it is
illegal at the national level.

Even though local law enforcement may not arrest someone because the state laws say their actions are fine,
national laws may dictate otherwise and allow a national law enforcement officer to conduct an arrest anyway.

Here are some additional Federalism pros and cons to think about.

The Pros of Federalism

1. It creates a sense of local patriotism.

People feel close to their communities. Although there is always a level of national pride, local patriotism is usually
the first level of loyalty that an individual will experience. Federalism encourages this local loyalty by allowing
communities to create laws and regulations that benefit themselves, even if those laws wouldn’t make sense to
implement in another geographic region.

2. It lessens the bureaucracy.

Although there are tiered levels of laws and regulations, the level of bureaucracy that exists within a system of
Federalism is lower than it is in other government structures. Diverse populations have unique needs that must be
met and having a national-level government attempt to understand those needs is always difficult. By allowing local
or regional officials to have the power to meet those needs, the safety and security of a population can be better
met.

3. It can provide evidence of success… or failure.

Because local and regional communities can create their own laws and regulations, other government structures
can look at the evidence of success or failure from those efforts to determine if they could be used in other
geographic regions. Welfare reform in the US originated from regulation efforts made in Wisconsin, for example,
and many environmental protection policies have originated from California.

4. It provides a better level of stability from a political perspective.

By allowing geographic regions to have a role in self-governing, the national government achieves political stability
to some extent because the people feel like they are in control of their own destiny. The national government can
then act as more of an oversight or support network to the local and regional governments that are in place.

5. It encourages involvement.

Because governments are at a local level, people know friends, neighbors, or family members who are active in
creating policies, procedures, or laws. Most elected positions, from school and hospital boards to the city council
and mayor, are local offices. Because there is such open access to the government, it encourages involvement
because serving is so easy to do.

6. It separates the powers of the government.

Imagine if the President of the US were to eliminate all other branches of the national government. No more
Congress. No Supreme Court. What could happen? Because there is a separation of powers, freedom is still ensured

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because the state governments act independently of the national government and the local governments, to a great
extent, act independently of the state government. The checks and balances it creates allows for independence.

The Cons of Federalism

1. It creates confusion.

Because the laws vary in each geographic region, people who travel or move to a new destination may find
themselves violating the law without realizing it. Recreational marijuana may be legal in Colorado, but if you take
legally purchased product outside of the state, you are then violating the local law there. You’re also violating
national laws on marijuana with a purchase. This makes it difficult to know if you’re actions are “right” or “wrong”
as a citizen.

2. It encourages governments to “pass the buck.”

No one really wants to take accountability for failed policies in a structure of Federalism. Everyone blames everyone
else and that creates gridlock between the various agencies. Then nothing gets done because everyone is trying to
assign blame and each group feels they have the correct ethical or moral position. In other government systems,
there is no question about who is to blame because there is only one unit of government.

3. It creates a wealth gap.

“The rich get richer and the poor get poorer.” It’s an expression that is heard in the US quite often and can be
described as a “wealth gap.” Socioeconomic resources are maintained at local levels and the national government
is then asked to fill-in whatever gaps may exist, with historically mixed levels of success.

4. It causes uncertainty.

Wildfires blaze throughout the Western United States every summer. Who is responsible for taking care of this issue
so that no one gets hurt? Or a hurricane blasts the eastern seaboard and causes extensive damage, flooding, and
homelessness. Who is responsible for responding? Because the government is tiered, no one is really sure who needs
to respond or pay for the response and this can create delays in service.

5. It can be used for leverage.

Let’s say the national government wants to change health care laws for everyone, but a handful of regional
governments don’t want any changes to take place. To garner support for the change, the national government
could offer additional funding or resources to the hold-out regional governments, but not offer anything to those
who agree that a change needs to be made. Federalism is a structure that encourages dissent because that dissent
can be used as leverage to grab more resources.

6. It stops national policies from being implemented.

Local laws can hamper the passage of regional laws. Regional laws can hamper the passage of national laws.
Federalism effectively disperses powers throughout a nation, but that also means the creation of national policies
can be incredibly difficult. Unless there are exceptions in place for each geographic region so that individualized
needs can be met in some way, it can take more than generation to pass national-level legal changes.

These Federalism pros and cons show us that it is a political system that is designed to ensure freedoms can be
experienced, even in times of governmental turmoil. No one has all the power, which means the population can’t
be overrun by their government. On the other hand, that insurance for freedom comes at the cost of creating
national identities, unity, and policy.

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 Promises and perils of federalism

IN PREVIOUS attempts to change the 1987 Constitution, the public debates were focused on shifting to a
parliamentary system though federalism was also proposed.

Now, federalism has become the primary focus because of the priority given to it by the present administration,
especially President Duterte who campaigned with this constitutional change agenda.

However, it appears that many Filipinos are not aware of the proposed constitutional change and a large number
are not even knowledgeable about the 1987 Constitution.

Pulse Asia’s national survey conducted in July before the State of the Nation Address of the President found that less
than half of respondents (41 percent) were aware of the proposal to amend the Constitution. Awareness was more
pronounced in Class ABC (57 percent).

Another alarming aspect of the survey results was that most respondents (73 percent) said they had little or no
knowledge at all about the Constitution. Higher levels of “sufficient/great knowledge” were registered in Metro
Manila (34 percent) as well as in Class ABC (43 percent).

Sharing of sovereignty

Federalism refers to a government system in which there is constitutionally established sharing of sovereignty
between central and state governments.

A third of the world’s population is under certain forms of federalism based on its particular historical, geographic,
sociocultural and political contexts. However, federalism, like any other institutional arrangement, has its own set
of advantages and disadvantages.

Below are some points to ponder when discussing federalism for the Philippines.

Diversity, peace, unity

Former Sen. Aquilino “Nene” Pimentel Jr. argues that federalism could address the problems of ethnic- or minority-
based armed rebellion in Mindanao and the lack of development in local areas due to the concentration of resources
at the center.

Some countries like Canada, India and Switzerland have indeed opted for a federal structure to bridge ethnic,
linguistic and cultural diversity within a society. Even in Western European countries, the textbook distinction
between federal and unitary states has become more blurred as some formal unitary states respond to pressures
from minority nationalisms and local democracy to grant autonomy to ethnic groups occupying particular areas.

Belgium has shifted to a full federal system while Italy, Spain and the United Kingdom have resorted to quasi-federal
forms or regionalization.

No assurance

However, there is no assurance that armed conflicts and secessionist aspirations will stop due to a shift to a federal
system. Federalism cannot simply create unity in diversity or a sense of nationalism that transcends people’s primary
identities.

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In the Basque region in Spain, the Euzkadi ta Askatasuna retains its armed capability and struggle for independence
despite the granting of powers to the area through Spain’s “asymmetrical” federal mechanism. Catalunya in Spain
and Scotland in the United Kingdom still retain independence aspirations.

In terms of fostering a national identity, Canada’s federalism has largely failed to construct a political union within
which both French-speaking and English-speaking populations can live harmoniously.

The same can be argued for Belgium, which has failed to create a “Belgian” national identity amid the Dutch-speaking
and French-speaking populations despite a shift to a federal setup.

Devolution, federalism

The Philippines’ current unitary system allows for devolution. While sovereignty is constitutionally reserved for the
national government, some powers and responsibilities are decentralized to local government units (LGUs). This is
made possible through the 1991 Local Government Code (LGC). Have all the provisions been exhausted and the
supposed benefits of the full implementation of the LGC been maximized so that the next stage is to move to a full
federal setup?

Twenty-five years after, did the LGC lead to greater local development, grassroots democratization and more
efficient delivery of public services? Have local governments, politicians and citizens adjusted to their responsibilities
and are now ready for a federal system?

Indeed, there are a number of trailblazing and innovative local governments in the area of service delivery, people’s
participation, economic development and disaster management, etc.

There are also cases of successful local and grassroots partnerships in areas where there are active civil society
groups, progressive local officials, and supportive academic, civil society and private institutions.

However, the situation is not the same across all LGUs. There are localities that remain poor. Others have no active
civil society groups and power remains in the hands of a few elites. Local corruption, violence and patron-client
relations continue.

LGC not maximized

Many of the provisions of the LGC have not yet been maximized. The recall and initiative mechanisms have not been
used regularly and properly. There are no sectoral representatives in the local councils as mandated by the LGC.
Local development councils and special bodies are not working as envisioned.

Can these provisions still be properly implemented and the LGC amended to make it work better before shifting to
or together with the shift to a federal setup?

Asymmetrical federalism

Is asymmetrical federalism already out of the question now that the administration plans to put the entire country
under a federal setup? Is it still possible to address the autonomy issues in Muslim Mindanao without federalizing
the entire Philippines?

Temario Rivera, Ph.D., a professional lecturer at the Department of Political Science, University of the Philippines
Diliman, argued for asymmetrical federalism instead of a wholesale shift to federalism in the context of Muslim
Mindanao and building on the lessons gained from the Autonomous Region in Muslim Mindanao (ARMM)
experience and the proposed Bangsamoro Basic Law (BBL).

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There are examples of this setup. Spain is an example of a “differentiated” or asymmetrical federalism in which most
parts of the country still seem to operate as a unitary state with some devolution but there are areas that operate
as if they are part of a federal state.

Under Spain’s 1978 Constitution, the autonomous communities can enter into negotiations with the central
government to produce a law defining the powers to be enjoyed provided that they do not conflict with the
Constitution.

Not all communities have chosen or been able to assert their autonomy compared with the historical regions of the
Basque region and Catalunya. Some constitutionalists are labeling the United Kingdom as an example of a “quasi-
federal” system due to varying levels of autonomy given to Scotland, Wales and Northern Ireland.

Resources, dependence

Autonomy and greater responsibilities at the local level will not work without fiscal decentralization in the form of
greater fiscal grants and/or shares of federal states and LGUs. Supporters of federalism argue that greater resources
and increased revenue shares will go to federal states and LGUs.

Pimentel proposed allocating 80 percent of resources to the federal states and increasing LGUs’ revenue share from
what is currently provided for by the LGC (40 percent) so that vital needs of all sectors of society are provided for.
Pimentel is also realistic in acknowledging that not all of the proposed federal states are equal in terms of resources
and opportunities.

Equalization fund

Thus, he is proposing an Equalization Fund to be administered by the federal government to assist states badly
needing development funds. This is currently the practice in some federations like Canada and Germany.

But what mechanisms can be put in place to avoid possible cases of continued dependence of poorer states on
development funds from the central government? What performance-based incentives can be offered so that states
and LGUs will focus on increasing local incomes and equitable development?

How can the situation in other countries where wealthier or more developed states or regions resent subsidizing
states and regions that continue to remain poor despite development support from the central government be
avoided?

After reunification, people from states (Lander) in the former West Germany resented subsidizing through their
taxes the Lander in the less economically developed former East Germany. In Italy where powers are devolved to
regional governments, the more developed regions in the north resent the development assistance given to the
poorer southern regions.

There is even a political party, Lega Nord (Northern League), that is calling for increased autonomy for some of the
richest Italian regions, even envisioning a nation called Padania.

Delivery of basic services

One supposed advantage of decentralization and federalism is greater efficiency in the delivery of basic services.
However, according to the International Institute for Democracy and Electoral Assistance, federalism might actually
lead to widening disparity of outcomes in terms of the provision and quality of public services.

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Citizens in some states may be efficiently receiving services that are of high quality but citizens in other states have
to deal with poor services. What mechanisms can be put in place to achieve national and state targets regarding
delivery of services?

Health workers

One concrete case is the current situation of public health services. Health services were the biggest and most
controversial set of services devolved under the LGC. There were efforts to recentralize health services because
health workers feared that health services would not be prioritized by local officials due to low appreciation and lack
of knowledge of and resources for health services.

Health workers also feared that with devolution, they would be at the mercy of local politicians who would threaten
their tenure and benefits. President Fidel Ramos vetoed the bill recentralizing health services in 1995. But until today,
health professionals and academics complain about the poor state of health services in various localities, despite
some outstanding LGUs with good health programs.

What will happen with health and other public services that will be the responsibility of federal states in a federal
setup? What will happen to health and other government workers who will now be assigned at the state level? How
can the civil service and bureaucracies at different levels be strengthened to fulfill their mandates without political
interference from local or state elites?

Avoiding gridlock

One documented advantage of federalism is that it creates a system of checks and balances. However, it can also
result in frustration and paralysis as implementation of bold reforms from the central authority or emergency
intervention of the central authority to deal with an urgent situation like disasters or failure of governance in one or
several of the states can be very difficult due to noncooperation of the federal states.

In this current situation in which many key government services are becoming more and more interconnected,
governments at all levels have to be more interdependent. There is a need for mechanisms under federalism in
which there is coordination and sharing instead of just competition.

In terms of emergency intervention of the federal government, the Philippines can look at India and Brazil wherein
federal interventions are possible when issues like human rights, good governance and democracy are threatened
in some constituent states.

In disasters, the Philippines’ experience with Supertyphoon “Yolanda” and other disasters, as well as the experiences
of federal systems like the United States and Mexico in their successes and failures dealing with disasters, can be
looked into.

Double-edged sword

In summary, federalism, like devolution, is a double-edged sword. Federalism alone will not be able to solve
problems related to armed conflicts, ethnic and cultural diversity, equitable development, efficient delivery of
services and local democracy.

If done haphazardly, it can lead to further problems. The process of changing the Constitution and creating a new
layer of government will entail huge costs. Thus, deliberations must be thorough and participatory.

Framers will have to look at various models of federalism and what other institutional arrangements can be
combined (presidential, semipresidential, parliamentary, etc.) before deciding which federalism model and

9
institutional combination would be more appropriate for the Philippines given its own history, political culture and
socioeconomic conditions.

Public discussions

The public should also be involved in information dissemination and public discussions. A well-informed public, after
all, will approve the proposed Charter change.

At the same time, it would be good to focus on a number of other actions that could complement a federal setup or
may even be prioritized before the decision to move to a federal system can be made.

These can include electoral and party-system reforms to make elections more competitive and political parties
stronger, a freedom of information act, amendments to the LGC such as reformulating the revenue-sharing scheme,
a progressive tax system, legislation strengthening participatory democracy, more inclusive antipoverty programs,
political dynasty laws, strengthening of institutions and the rule of law, etc.

Does Federalism Make Sense For The Philippines?

Federalism may end up only reinforcing socio-economic and ethno-political fault lines in an already divided
archipelagic nation.

Next on Philippine President Rodrigo Duterte’s agenda is changing the country's form of government under a new
constitution. The move has provoked a backlash among certain sections of society, ranging from the business sector
to the church and media, which have questioned the rationale for constitutional change. A recent survey by Pulse
Asia found that 67% of Filipinos oppose the change, while only 18 percent were in favour and the other 14 percent
were undecided.

Critics contend that the move is part of a plot to extend the president’s term in office. In response, Duterte has
sought to reassure the public that he will not extend his term beyond his constitutionally mandated six years, which
is due to end in mid-2022.

Leaving aside the conspiracy theories, a federal form of government, if enacted, will likely prove a bane rather than
a boon for the country. Federalism may end up only reinforcing socio-economic and ethno-political fault lines in an
already divided archipelagic nation.

The Federalist Blueprint

Last month, a special consultative committee, made up of leading jurists and political scientists who were
handpicked by the president, finalized the draft of a new constitution.

Duterte has already endorsed the draft, but the Philippine Congress is not under any obligation to adopt it in its
current form. Thus, the draft serves more as a reference point rather than the final substance of a new constitution,
which will have to be approved by a majority of the electorate in a future referendum.

Nonetheless, the draft does provide some insights into the rationale of the pro-federalism camp, which includes
Duterte and his ruling party, PDP-Laban. Under the proposed constitution, the Philippines will shed the unitary,
centralized form of government it currently has in favor of a federal setup, not too dissimilar from that of the U.S.

Under the new proposed constitution, the Philippines will be divided into 18 federated regions. Regional states will
have greater power over raising their own revenues, determining their own legislation and choosing their economic
development models.

By breaking distributing some of the powers currently residing in the country's Manila-centric form of government,
Duterte and his supporters hope to bring more prosperity to its neglected peripheries.

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Metro-Manila alone, which hosts barely 10% of the country’s population (103 million), accounts for more than one-
third (36.5%) of the country’s entire GDP.

Points for Concern

On paper, federalism seems well suited for the Philippines. In reality, however, it could become a recipe for disaster
in a country that is already divided by language, religion and economic inequality.

First of all, studies show that only a few regions are capable of raising enough taxes on their own. The vast majority
of provinces, which will be submerged into new federal states, lack the basic administrative capacity for generating
revenue. Not to mention duplication in taxes and further stress on the nascent bureaucracy of peripheral regions
under a federal arrangement.

Under a federal system, the richer states of the north will have even more resources to enhance their
competitiveness, thus deepening the developmental gap with other southern regions.

Even in prosperous nations like the U.S., the developmental gap between the rich coastal states of California and
New York, on one hand, and the southern and midwestern states, on the other, has barely narrowed after two
centuries of federalist experience.

In developing countries like India, Iraq and Nigeria, federalism has either failed to close developmental gaps and
ethno-communal tensions among various states or, more worryingly, in some cases reinforced and reified them over
the decades. In places such as Yugoslavia, a federal setup eventually collapsed into a genocidal civil war.

Moreover, a federal system could further strengthen the power of political dynasties and warlords, which control
the Philippines’ peripheries. According to academic studies, around 178 so-called "political dynasties" – politicians
related by kinship and blood – control 73 out of 81 provinces across the country. They also control up to 70% of the
legislature, thus they seem likely to remove any proposed restrictions on the proliferation of political dynasties.

Under a federal system, they are best positioned to dominate the newly created local legislature and state
institutions, further consolidating their grip on power in the country's poorer regions. It's no wonder, then, that most
surveys show the vast majority of Filipinos are either against constitutional change or completely unaware of its
implications.

From: Richard Heydarian, political science professor in DLSU

Is federalism the answer?

The Financial Executives Institute of the Philippines will be holding a lunch symposium on federalism this March. We
are inviting two sets of panellists to provide opposing views on why we should or should not adopt a federal form of
government.

In a speech recently delivered by retired Justice Reynato Puno, he described federalism as a system of government
where its powers are exclusively assigned to either the federal government or the states, or shared by both the
federal and the state government. The distribution of powers is written in the Constitution itself.

This is one of the reasons why we are currently having these discussions in the legislative branch on the costs and
relevance of convening a constitutional convention or a constitutional assembly.

The distribution of powers distinguishes a federal government from a unitary government. We currently have a
national government that has delegated some powers to the local government under the LGU Act, as well as the
various autonomous regions acts.

There are apparently variations in the way a federal government can be structured. Justice Puno cited cooperative
federalism, where powers and functions are shared in collaborative patterns to solve problems in the spirit of

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cooperation. You can have competitive federalism, where the states are given greater power to manage their affairs
in competition with one another, with the national government playing a limited role. You can have coercive
federalism, where the power of the federal government to intervene is extensive and intrusive. You can have
permissive federalism, which is almost the same as the unitary government where the states are granted powers by
the federal government.

Puno further described the Philippine journey toward federalism, starting with Rizal in 1898 when he originally
espoused it. This was followed by Aguinaldo and other Filipino leaders. At that time, they observed the diversities in
the archipelago stemming from a difference in religions, culture, language and geography; and concluded that
federalism might work.

In recent history, former President Gloria Macapagal-Arroyo espoused federalism to solve the problems stemming
from the Muslim separatist movement. She created a Consultative Committee led by former UP President Jose
Abueva to study the revisions to be made in the 1987 Constitution. The Commission fulfilled its mandate but
Congress failed to call for a ConCon or a ConAss to revise the Constitution. Failing this, she went further by entering
into an executive agreement with Murad and Iqbal to create a Bangsa Moro juridical entity that will govern the
Bangsa Moro. It described the relationship of the national government and the Bangsa Moro as associative,
characterized by a sharing of sovereign power and responsibility. The Supreme Court deemed this agreement as
unconstitutional.

President Aquino also exerted efforts to accede to the demands of the MILF by crafting a bill giving powers to the
MILF to govern certain territories. Again, this bill was not passed by the Senate.

In the last elections, President Rodrigo Duterte was the only one among the five candidates who supported
federalism. He recently warned, “We have to talk peace with the MNLF and the MILF. If we fail to come up with a
reasonable counter proposal, then I assure you that there will be fighting everywhere in Mindanao.” He also added
a word of caution that “the mainstream rebel groups would be joining with the extremist groups.”

Some proponents of federalism also point out that we have a failing democracy and our electoral system does not
work. There is a lot of conflict between the three branches of government. Corruption is rampant because both the
Ombudsman and the CoA do not have enough authority. Political power is monopolized by dynasties and economic
power is controlled by a few. The country is plagued by the longest running Communist rebellion in the world and
the state is gripped by rising criminality.

The other side of the coin, however, is the question of whether federalism would, in fact, solve these issues. There
are questions on whether we would have a strong federal government that would keep the new states together.
This is especially risky because there are great disparities in economic wealth among the different regions in the
country. The allocation of power between the different regions has to be well thought out. The other question is
whether we have a judiciary that is strong enough to mediate the overlaps in power between the states and the
federal government.

Evils of political dynasties

When does a political family become a political dynasty? A political dynasty is established in two instances. First,
when an elected government official is succeeded by a member of his household up to the first degree of
consanguinity or affinity. Second, when several members of a family occupy various positions in government
simultaneously.

There are 250 political families who control the country, 56% of whom come from old political elites like the
Osmeñas, Roxases and Magsaysays and 44% emerged after the 1986 Edsa Revolution.

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In the Senate, 16 out of the 24 members belong to political dynasties as are 70% of the members of Congress. An
audit of their statements of assets and liabilities reveal that lawmakers who belong to political dynasties increase
their net worth by an average of 39% after every term while those who do not belong to dynastic families increase
their wealth by less than 10%.

Among local governments, 73 out of 80 provinces are controlled by political dynasties. Statistics show that the
average incidence of poverty in provinces controlled by political dynasties is a staggering 29.15% while those not
under dynastic control stands at only 18.91%. Abject poverty is at 2.31% in dynastic bailiwicks and only 1.96% in
non dynastic localities.

The numbers suggest that political dynasties exacerbate the incidences of poverty rather than improve them. This
assertion is further supported by the inherent consequences of political dynasties as described below.

INHERENT CONSEQUENCES OF DYNASTIES

On Governance: When members of the same family occupy multiple positions within a city or municipality, most
are likely to consolidate power in a pseudo monarchial manner. In such a setup, the preservation of power becomes
the priority, even more important than social and economic development itself. Painful reforms and unpopular but
necessary decisions are avoided as they erode political equity. Adoption of populist policies become the norm at the
cost of stunted development.

Political dynasties are more likely to utilize their budgets doling out scholarships, funeral aid and basketball courts
rather than investing in social development programs, economic initiatives and infrastructure.

These dynastic families are easily recognized — they operate in areas where “tarpaulin politics” is prevalent.
Politicians who grab credit by posting their names and faces on every corner via tarpaulin banners is a tell tale sign
of a poorly managed dynastic territory.

On Fair Elections: It is just as easy for a dynasty’s family member to win an election as it is difficult for new talent to
penetrate.

Within the disposal of dynasties are formidable political machines, funds and the many advantages of being the
incumbent. The playing field is skewed to the dynasty’s favor. This unfair advantage dissuades aspiring public
servants from throwing their hat in the proverbial ring. In effect, it decrease the level of political participation among
the populace. Dynasties monopolize power by depriving others from a fair opportunity to serve.

This is why we have 21-year-old scions becoming mayors and governors while the man with a doctorate degree in
public governance is edged out. Political dynasties cause a brain drain of talent among elected officials.

On Competence: Capabilities, values and work ethic rarely improve from generation to generation, especially within
powerful families enjoying comfort and positions of influence. More often than not, the second generation simply
emulates the habits of the first. New ideas are stifled due to inbreeding of management practices while bad habits
are magnified. That said, it can be argued that the quality of governance deteriorates over time in dynastic bailiwicks.

On Generation of Wealth: By virtue of their elected positions, political dynasties are able to wield influence,
consolidate economic resources and use their political machineries to take advantage of business opportunities.
These opportunities may come in the form of lucrative government contracts or power brokering deals. Whether
over or under the table, political dynasties enjoy an undue advantage in generating wealth.

On Check and Balance: Most developed nations like South Korea have two sets of elite — the political elite composed
of high level civil servants and technocrats and the economic elite composed of captains of industries and business
owners. Their interests are never made to intersect as doing so causes conflicts of interests. These nations have
strong institutions capable of disciplining one or the other should their actions go against national interest.

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In the Philippines, the political and economic elite are one and the same (most of the time). This is why policies and
decisions are often laced with self-interest.

On Economic Inequality: Political dynasties are of the elite class, if not by stature then by virtue of their net worth.
Their continued persistence in our political system strengthens the sway of the elite over the poor. The
disenfranchised continue to be the subjects while the elite consolidate their supremacy.

Culture of Dependence: The concentration of political and economic power among a few families benefits a minute
segment of society while leaving out the greater majority. It institutionalizes economic inequalities and perpetuates
a culture of dependency between the elite and the poor. It comes as no surprise that the provinces with the most
established political dynasties are also poorest.

THE 1987 CONSTITUTION

Article II, Sec. 26 of the 1987 Constitution is very clear in its intent. It says, “the state shall guarantee equal access to
opportunities for public service and prohibit political dynasties as may be defined by law.”

In theory, the constitution prohibits political dynasties. However, it still lacks an enabling law that defines what a
dynasty is and its repercussions.

Congress has had the duty to enact an enabling anti-dynasty law since 1987 but failed to do so for self-serving
reasons. There have been 32 attempts but not one has passed the committee level of the House.

The public has waited 31 years for an enabling law, an unreasonable time to wait. Legislators, past and present, have
conspired to betray the Constitution for self-interest.

After 31 years, political dynasties have entrenched themselves deeply in our political system. As a result, our
institutions have become weaker, reforms are slow to implement, corruption is rife, incompetence is tolerated and
partisan politics is the name of the game in the halls of power.

As citizens, there is not much we can do but resist political dynasties. The power is still in our hands, as voters. Resist
the dynasties and vote for the aspiring, qualified candidate. Its about time we change our cast of leaders. Its about
time we infuse new talent.

5 Reasons the Data Privacy Act and the Freedom of Information EO Don’t Conflict With Each Other

While as a matter of general principle Atty. Mel is correct, examining closely the provisions of the Data Privacy Act
and the recently-signed Executive Order would yield the following observations, which may be seen as reasons
why the said law does not actually conflict with the FOI EO :

1. The concepts of “data privacy” in the law (DPA) and “privacy” in the FOI EO are different

While RA 10173 may not have defined the concepts of “data privacy” as well as “privacy”, these are two distinct
concepts that operate for varying purposes and may be invoked through various means, with the more general
concept of “privacy” not dependent on what the law dealing with “data privacy” provides.

“Data privacy” under RA 10173 involves personal information of individuals, without regard to their nationality,
who are referred to in the law as a “data subject” and this “data subject” are provided certain rights in sec. 16 of
the Act as regards the processing of their personal information while also providing for the security of personal
information being processed and providing for accountability for the transfer of said personal information, among
other noteworthy provisions of the law.

It can be conceded that even “privacy” as a solo concept is not as well defined in our laws, though in the 1987
Constitution, in the Bill of Rights in art. III, Sec. 3(1), it has a qualifier, like “privacy of communication and
correspondence” and even the right in art. III, sec. 2 in the 1987 Constitution of individuals or citizens to be secure

14
in their persons, houses, papers and effects against any unreasonable searches and seizures of whatever nature
and for any purpose, is actually also a right to privacy in a broader sense, along with what the original notion of
“privacy” is, when it was first articulated by US Supreme Court Justice Louis D. Brandeis and Samuel D. Warren in
their famous Harvard Law Journal article in 1890 as the “right to be let alone.”.

Somehow, the FOI EO in its sec. 7, as referred to by Mel Sta. Maria, may be referring to this broad notion of
“privacy”, not the “data privacy” referred to in the DPA. What this means is that the “privacy” in the FOI will
operate under different rules and will not necessarily be affected by the provisions regarding “data privacy” in the
DPA. However, if the implementing regulations of both this FOI and the DPA, and the National Privacy Commission,
which implements the DPA, has been conducting nationwide consultations with its draft IRR of RA 10173, will have
to be harmonized, the rules may be written as to when the broad notion of “privacy” which is in the Constitution
and the notion of “data privacy” in the law, will apply and under what circumstances. As Mel Sta. Maria said, the
devil is in the details.

2. The processing of personal information done under the DPA does not involve disclosure and public access to
information on matters of public concern

What we as a “data subject” under the DPA should be watchful for is the “processing” of our personal information
and that word is defined in sec. 3(j) the law as “any operation or any set of operations performed upon personal
information including, but not limited to, the collection, recording, organization, storage, updating or modification,
retrieval, consultation, use, consolidation, blocking, erasure or destruction of data.”

These acts are an entirely different character from disclosure and the giving of public access to information in the
matter of public interest, thus the act of providing disclosure and public access to information in the FOI EO may
not be considered the “processing” of personal information as contemplated by the law. Besides, the matters
facilitated by the FOI EO, the disclosure and public access in the matter of public interest, are constitutional in
character, part of the Bill of Rights of the People, dubbed as “the right of the people to information on matters of
public concern”, as such rights emanating from the Constitution, they cannot just be nullified or qualified by the
notion of “processing” of personal information provided for by the DPA. In other words, a law cannot be made to
prevail over a provision of the Constitution. Such constitutional mandate cannot also be given an override by the
FOI EO, since an Executive Order is usually considered a lower category of a regulation compared to a legislative
act.

Putting the FOI EO and the law side-by-side, this is where Mel Sta. Maria is correct that, if not fine-tuned very well,
the law, the DPA, may make ineffective the FOI EO, especially when the public official opposes the giving of access
to personal information citing sec. 7(b) of the FOI EO where the public official may be unduly exposed to
vilification, harassment or any other wrongful acts. Resolving this dilemma points us to our succeeding points
below.

3. Sensitive personal information in the DPA does not include investigation into a public official’s alleged hidden
wealth or wrongdoing

Delving further on the nitty-gritty of the DPA, there may be certain types of personal information whose
processing is absolutely prohibited save for certain exceptions provided by sec. 13 of the law and we ask our
readers to just consult that section for them to know what those exceptions are.

But looking at what may be considered as “sensitive” personal information, it also refers to “any proceeding for
any offense committed or alleged to have been committed by such person, the disposal of such proceedings, or
the sentence of any court in such proceedings.”

What this means is that if there’s any alleged hidden wealth or wrongdoing by a public official, which is what to be
sought for disclosure by the FOI EO, the public official cannot simply allege they are sensitive as there has to be a

15
“proceeding” first where such sensitive personal information may be involved. This “proceeding” which has to be a
formal process, does not extend to any investigation done by a reporter, a researcher or anyone, to determine if
there is such hidden wealth or wrongdoing. Besides, the DPA in sec. 4(d) does not apply to processing of personal
information for “journalistic, artistic, literary or research purposes.”

4. The provisions on data privacy in the DPA do not apply to acts to which public officials have performed their
tasks under their mandate and function

RA 10173 has expressly provided in sec. 4(a) that “information about any individual who is or was an officer or
employee of a government institution that relates to the position or functions of the individual” is outside of the
scope of the law, thus any such information about the acts of the public official on how he or she has performed
his or her functions are not covered by the rights to data privacy provided by RA 10173.

When related to sec. 7(c) in the FOI EO, which states the following :

“any employee, official or director of a government office per section 2 hereof who has access, authorized or
unauthorized, to personal information in the custody of the office, must not disclose that information except when
authorized under this order or pursuant to existing laws, rules or regulation.”

what this means is that the DPA cannot be used to deny access to the information being requested, since the DPA
has nothing to do with information about any individual who is or was an officer or employee of a government
institution that relates to the position or functions of the individual . Instead, it is the implementing rules of the FOI
EO that will deal with how this non-disclosure or disclosure of the public official’s personal information will be
carried out and perhaps those rules should be written in a manner that does not defeat the people’s constitutional
right to information on matters of public concern. Here, Atty. Mel is correct there can be further layers of rules
that will subject the FOI EO to further limitations and contingencies, but that is not due to the DPA, but to the rules
that will be further issued as stated in the FOI EO.

5. Civil liabilities arise from the violation of the general right to privacy, but in the right to data privacy, only
“restitution” is possible, a remedy which is but one form of civil liability

The Civil Code in its art. 32, makes liable for damages any public officer or employee, or any private individual, who
directly or indirectly obstructs, defeats, violates or in any manner defeats or impairs the constitutional rights of a
person among which rights are the right to be secure in one’s person, house, papers and effects against
unreasonable searches and seizures and the privacy of communication and correspondence.

What this means is that the public official concerned, whose right to privacy in the FOI EO is protected, can sue for
damages anyone, including his or her fellow public employees, who may interfere with the public official’s right to
privacy, the constitutional rights, but not the data privacy referred to in the DPA.

This right to sue for damages for violation of the said constitutional rights is a broad one, which is different from
the right to restitution, mentioned in sec. 37 of the DPA, which is what is only provided for to those aggrieved by
the implementation of the law.

Restitution, which is explained in art. 105 of the Revised Penal Code, refers to the restoration of the thing itself,
which means a rectification of any error in the processing of personal information by the data subject and nothing
else, though if a public official whose information may have been unduly processed under the DPA may invoke the
penal provisions of the DPA and the accompanying hefty fines included therein, but given this is a special law, the
general notion of damages, from moral damages, nominal damages, actual damages, exemplary damages may not
be invoked when the public official is suing under the DPA.

In summary, the unqualified right to privacy may, at first glance, defeat the public’s right to information on matters
of public concern but this must be distinguished with the right to data privacy which operates under rules provided

16
by the Data Privacy Act (DPA). The DPA and the FOI EO do not outrightly clash, but the implementing rules of both
the law and the Executive Order may need to be fine-tuned and harmonized to fully implement the public’s right
to information on matters of public concern.

The passage of a law on FOI may have to await how these two measures will play out, so let’s have those
implementing rules and implement them already so that we will all benefit from experience how they may be
made to work with each other and the future law on FOI will be the means to resolve their possible areas of
conflict, if ever there may be a real one.

Why Data Privacy Law Is (Mostly) Constitutional

Neil M. Richards, Why Data Privacy Law is (Mostly) Constitutional, William & Mary Law Review, 2014, Forthcoming.

Washington University School of Law; Yale Information Society Project; Stanford Center for Internet and Society

Date Written: October 2, 2013

Abstract

Laws regulating the collection, use, and disclosure of personal data are (mostly) constitutional, and critics who
suggest otherwise are wrong. Since the New Deal, American law has rested on the wise judgment that, by and
large, commercial regulation should be made on the basis of economic and social policy rather than blunt
constitutional rules. This has become one of the basic principles of American Constitutional law. Although some
observers have suggested that the Supreme Court’s recent decision in Sorrell v. IMS Health (2011) changes this
state of affairs, such readings are incorrect. Sorrell involved a challenge to a poorly-drafted Vermont law that
discriminated on both content and viewpoint. Such a law would have been unconstitutional if it had regulated
even unprotected speech. As the Sorrell Court made clear, the real problem with the Vermont law at issue was
that it didn’t regulate enough, unlike the “more coherent policy” of the undoubtedly constitutional federal Health
Insurance Portability and Accountability Act of 1996.

Data privacy law should thus rarely be thought as implicating serious constitutional difficulties, which is a good
thing. As we move into the digital age, in which more and more of our society is affected or constituted by data
flows, we face a similar threat. If “data” were somehow “speech,” virtually every economic law would become
clouded by constitutional doubt. Economic or commercial policy affecting data flows (which is to say all economic
or social policy) would become almost impossible. This might be a valid policy choice, but it is not one that the First
Amendment commands. Any radical suggestions to the contrary are unsupported by our Constitutional law. In a
democratic society, the basic contours of information policy must ultimately be up to the people and their
policymaking representatives, and not to unelected judges. We should decide policy on that basis, rather than on
odd readings of the First Amendment.

Ending "Endo"

“Endo” is the twin brother of the drug monster that also needs to be slain, so says the Duterte administration.
“Endo” is layman's term for end of employment contract. It is the date indicated on the employment contracts and
is dreaded by employees as it means the end of his or her employment.

The Department of Labor and Employment (“DOLE”) has long defined “endo” as a hiring practice deliberately
resorted to prevent workers from acquiring regular status done through repeated short-term arrangements by one
principal through the same or difference contractors, or through a service agreement of short duration under the
same contractor, or different contractors.[1] When the new administration took over the reins of governance, it
served notice that it will bring the fight against “endo” in the middle of the ring.

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On July 25, 2016, the DOLE issued Labor Advisory No. 10, Series of 2016, pursuant to the Department's policy
directive to strictly implement and enforce the workers' constitutional right to security of tenure. It reiterates the
prohibition against labor-only contracting; and rightly so, since “endo” erodes the right of and employee to security
of tenure. Simply, the right to security of tenure guarantees the right of employees to continue in their employment
absent a just or authorized cause for termination.

Where an employee may only be dismissed thru either of the two causes, first, for just cause; or second, for
authorized cause, by the mere expedient of providing an “endo” date in an employee's contract, a third cause is
created to terminate an employment. Not that the employer and employee cannot validly stipulate for an end of
their employment contract, but “endo” has been the subject of abuse with the employer imposing the “endo” date
by virtue of its superior economic standing in relation to the employee. It has come to the point that the “endo”
dates imposed have no significance at all other than as a way of skirting the constitutional guarantee to security of
tenure.

Endo thru Manpower Agencies

Often, “endo” is implemented under contracting and subcontracting agreements, where the employer referred to
as principal farms out the performance of a part of its business to another, referred to as the contractor or
subcontractor.

There are many parts of one's business that may be validly farmed out to contractors or subcontractors, examples
of which are janitorial and security services. But many these parts of business have been unscrupulously contracted
out so much so that manpower supply contracts have become what is known in law as “labor-only” contracting, an
illegal scheme where the contractor without any capital earns from merely recruiting, supplying and placing workers
to perform a job to companies.

Thus, DOLE Labor Advisory No. 10, Series of 2016 reiterates the prohibition found in Section 6 of an earlier
Department Order No. 18-A, Series of 2011 which in turn implements Articles 106 to 109 of the Labor Code,
provisions that specifically address contracting and subcontracting arrangements. The practice of employers
requiring employees under a subcontracting arrangement to sign an employment contract fixing the period of
employment to a term shorter than the term of their service agreement is forbidden.

It is an open secret that repeated hiring of the same workers is resorted to because the law accords regular status
to all employees who have worked for an employer for more than six (6) months. Under a scheme commonly known
as “555,” employees are hired for five months then dismissed by reason of “endo” and then rehired for another five
months, repeating process over and over. This repeated hiring of employees is seen under the law as evidence that
the employee is performing functions that is “usual and necessary” to the trade or business of the employer, which
consequently makes them a regular employee who are protected by the constitutional guarantee to security of
tenure. Their employment cannot be terminated thru “endo.”

Valid Employment Contracts with Fixed Terms

As mentioned, there are services that may be validly contracted out like security and janitorial services. Security
guards owing to their semi-military work and ability to carry firearms are regulated separately thru other
government agencies. Janitorial work to clean a large area needs special equipment which may be validly contracted
to an agency.

Further, there are situations where placing a fixed term or an end to an employment contract cannot be avoided.
An employee who will take the place of another employee who is temporarily on maternity leave is understood to
vacate his post once the latter returns; a job to construct a building will end once the building is completed; hiring
of additional employees merely to meet the strong demand of the season but which employment ends at the end

18
of the season, are some examples. These contemplated employment arrangements are called casual, project,
seasonal and fixed-term employments, and are allowed by law and jurisprudence.

A casual employment is one where one is hired on occasional or temporary basis on an as-needed basis or to meet
the employer's staffing needs during periods of unusual circumstances. Project employment is an arrangement
where the employment has been fixed for a specific project or undertaking whose completion or termination has
been determined at the time of the engagement of the employee. Because the employee's services are coterminous
with the project, the employments are legally and automatically terminated upon the end or completion of the
project.[5]Seasonal employment operates much in the same way as project employment, albeit involving work or
service that is seasonal in nature or lasting for the duration of the season.

Fixed term employment, on the other hand, has its basis on jurisprudence. To be valid, a fixed-term employment
must have a day certain agreed upon by the parties for the commencement and termination of their employment
relationship. A day certain simply defined as a day that must necessarily come, although it may not be known when.

Thus, for as long as there is a valid basis for end of employment contract s exemplified in casual, project, seasonal,
and fixed-term employment arrangements, contract or employment with an end, although at first glance may fall
within the proscribed “endo” practice, are valid and legal in the Philippines.

What is sought to be prevented by law is the indiscriminate fixing of a term to an employment contract. Placing a
definite date to signify the end of an employment contract without a valid justification as to why such end was placed
on such contract has always been prohibited. Now the prohibition is being highlighted by the new administration.

The “endo” prohibition may appear contradictory to the freedom of every person to agree to a contract. It may also
have the appearance of curtailing an employer's management prerogative. However, it must be remembered that
employment contracts are not ordinary contracts but are impressed with public interest. In contracts of
employment, the employer and the employee are not on equal footing. Unlike an ordinary commercial contract
where the signatories generally are at par with each other, the employee owing to his desire to find a job will sign
any employment contract even if the terms are stacked against him. In such case the law steps in to equalize the
situation. The labor force is a special class that is constitutionally protected because of the inequality between capital
and labor.

Although DOLE Labor Advisory No. 10, Series of 2016 does not totally ban the practice of “endo,” its reiteration of
the workers' security of tenure together with the strong pronouncements by the new administration that it will put
an end to “endo” sends a strong signal that this dreaded practice will no longer be tolerated.

Consequences of Endo

Being a prohibited act, what then are the consequences of “endo”? For the employer, it is reinstatement of the
employee to his former work and payment of back wages from the time the employee was dismissed up to his actual
reinstatement. Other benefits like his proportionate service incentive leave and 13th month pay and even damages
can also be recovered but the thought of actual reinstatement and payment of back wages for days that are not
worked are already strong deterrents to end the practice of “endo.”

‘Endo’ in the Philippines

During the past few months, contractualization and endo (short for ‘end of contract’) have become two of the
hottest and most sensitive topics in the Philippines. Ranking high among the major issues during the presidential
elections last year, labor groups and presidential candidates weighed in on these subjects and argued about the
effects of contractualization and endo on Filipino workers.

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As the debates continue, more and more people begin to offer their opinion. However, common misconceptions
about what endo and contractualization actually are, may sometimes lead to confusing arguments – an issue Asiapro
strives to resolve by defining what both first.

What is Endo?

End of contract or endo refers to the scheme that corrupt companies exercise to abuse their workers. In the
Philippines, the law requires companies to regularize their workers after six months. Unfortunately, some
corporations terminate their workers a month or two before their sixth month of employment. Why? Because this
means that they do not have to regularize those workers. Instead, they just hire then terminate their contracts within
this five-month period and continually repeat this process to create a vicious cycle of ‘end of contract’ or ‘endo.

This has two results: one, it will prevent these laborers from enjoying the full benefits of regular employment such
as 13th month pay. Two, it will allow companies to utilize the skills and talents of these workers without properly
compensating them for their efforts.

However, it must be made clear that endo – otherwise known as 555 – still falls under contractualization. Simply
put, it is an abuse of contractualization’s inherently temporary nature of employment.

However, there are companies in certain industries that hire contractual laborers for various reasons that do not
necessarily violate the basic rights of these workers. For instance, a publishing company might hire contractual
workers during the last month of school, throughout summer, and up until the first few months of a new school
year. Why? Because during this time, schools will be making their orders and textbooks have to be delivered swiftly.
However, the demand for book deliveries will not be that high for the rest of the year. Therefore, it will make more
sense to hire contractual workers only during the peak season. Otherwise, the company may find itself employing
and compensating unproductive staff during idle stretches of the year.

Here’s another example: a certain department in a company is experiencing some problems with its personnel. To
fix the situation, management decides to hire an HR expert as a contractual worker who can provide professional
insight on the issue and offer solutions to help remedy the problem. Since this is purely situational, it would make
no sense to hire an HR expert as a full-time employee.

This is what contractualization is – a practice where a company hires contractual workers only when is necessary.
This does not only benefit the company, but the workers as well. After all, how will workers grow professionally if a
company hires them to work during limited periods of the year only? Instead of working full time for one business,
contractual workers may work on other projects when they want to continue earning money and enhance if not
learn new skills to advance their careers. This will not just give them total control over their schedule, but expand
their knowledge and experience readily as well.

Meanwhile, endo operates under the guise of contractualization to exploit workers. In endo, companies hire workers
for full-time positions, only to terminate their contracts before they are regularized, and then hire them again for
another five months.

How Does Endo Affect Filipinos?

Why do various labor groups in the country want to end the practice of endo? The answer is simple: endo is an abuse
of the Filipino workers’ rights. It is an unfair labor practice that should be prohibited to protect marginalized workers.

Endo has a huge negative impact on Filipinos’ lives. Through this unjust practice, companies refrain from regularizing
their workers who have been employed for six months or longer. Aside from not receiving due compensation, they

20
are deprived of the benefits enjoyed by full-time employees such as paid leaves, 13th month pay, and government
mandated SSS, Philhealth, and Pag-IBIG coverage, among other mandatory requirements.

Minimum wage earners and student workers are the ones who are often victimized by this unfair labor practice.

What are Asiapro’s Efforts in Eliminating Endo?

Although endo is practiced by numerous employers, there is no reason for Filipinos to lose hope. There are
employers out there that do not – and will never – take advantage of workers by hiring them as contractual workers,
only to terminate their contracts a month before their regularization. One of them is Asiapro, a multi-purpose
cooperative that aims to end the struggle of Filipino workers on endo.

How does Asiapro do that? Unlike a number of manpower agencies, Asiapro always puts the higher interests of its
workers who are also member-owners, first and foremost. This ensures that its member-owners will not be abused
through the unlawful practice of contractualization but will receive proper compensation and benefits.

That’s right. Asiapro member-owners enjoy security of tenure and receive proper wages and statutory benefits that
are mandated for regular employees. It goes beyond what its member-owners expect of them by providing them
with life and medical insurance, proper training and development, and a portion of the cooperative’s earnings as
well.

In its effort to provide its member-owners with a steady source of income, Asiapro invested in several other
businesses. And as a multi-purpose cooperative, portions of its earnings from these ventures are distributed to our
member-owners.

In the end, Filipinos should not forget that there is a distinct difference between endo and contractualization as a
legitimate business practice. With this, every worker should recognize between employers who abuse or protect
workers’ rights. As a social enterprise, Asiapro continuously fights for marginalized Filipino workers and their rights.
The evidence is in how it has continued to provide secure and full employment for its member-owners for almost
two decades already.

‘Endo’ bill now up for Duterte’s signature

The House earlier approved its own version of the measure – HB 6908 – in January 2018. With the House adopting
the Senate version on Tuesday, there is no need for the bill to go through the bicameral conference committee.

The endo bill will instead be transmitted directly to Malacañang so Duterte could sign it into law.

The measure reiterates the ban on labor-only contracting and clarifies uncertainties in existing laws that have
allowed employers to circumvent the prohibition.

Under the bill, labor-only contracting exists when:

The job contractor merely supplies, recruits, and supplies workers to a contractee.

The workers supplied to a contractee perform tasks/activities that are listed by the industry to be directly related to
the core business of the contractee.

The contractee has direct control and supervision of the workers supplied by the contractor.

The bill also classifies workers under 4 employment types:

 regular
 probationary
 project

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  seasonal

Project and seasonal workers have the same rights as regular employees. These benefits include the payment of
minimum wage and social protection benefits.

Ending labor contractualization has been a campaign promise of Duterte, who had certified the endo bill as urgent
in September 2018.

Duterte previously signed an executive order on contractualization, though labor groups and progressive lawmakers
alike slammed it as “having no effect” in effectively abolishing endo in the country.

Contractualization: Pros and cons

One of the ticklish issues that will confront the Duterte administration when its term finally commences at midday
of June 30, 2016 is the continued existence or demise of job contractualization. Despite several attempts to weed
out this very contentious labor scheme, it has remained in effect until now.

The capitalist nature of the outgoing regime has not given emphasis on this supposed anti-poor policy of
employment for reasons that may be both beneficial and otherwise to labor matters and stakeholders. But then we
also have to acknowledge that many investors deem it wise to put their money in the Philippines because of the
relatively cheaper labor cost, which to an extent is brought about by contractualization.

The termination of “endo”(end of contract) as a campaign promise of incoming president Rodrigo Duterte will create
various repercussions to the Philippine economy. The labor force especially the proletariat sees endo as a tool of the
capitalist to manipulate and exploit the vulnerability of laborers. The laborers, as an offshoot of prolonged
unemployment and uncompetitive nature, would rather accept a below par employment contract without full
benefits enjoyed by a regular worker than have no paid employment.

The termination of “endo”(end of contract) as a campaign promise of incoming president Rodrigo Duterte will create
various repercussions to the Philippine economy. The labor force especially the proletariat sees endo as a tool of the
capitalist to manipulate and exploit the vulnerability of laborers.

Although there are legal implications of endo because a company cannot just practice labor contracting wittingly or
unwittingly without having in their company a roster of regular employees, it has nonetheless contributed a lot to
the total employment and national income by way of short-term employment opportunities. While endo has
deprived many laborers of the opportunity to enjoy the full benefit of being a regular employee, the stringent
measure normally applied to a regular applicant is relaxed in favor of an endo worker, resulting in a bigger
participation of the entire employment sector.

Cancellation of endo would most likely post stringent requirements for the employers before new regular employees
may be hired. Hiring regular employees in favor of contractual employees, we have to admit, entails a lot of costs
perhaps more than double than what a contractual employee will get sans benefits. Although this author would not
favor a full implementation of contractualization, but the thought of full cancellation of the same would accelerate
the unemployment statistics that we currently have.

Logic tells us that you cannot force the employers to give what they do not have. Much less force them to hire regular
employees to fill in job vacancies. To escape from the responsibility of carrying the load and additional cost of hiring
regular manpower, firms would rather overload their current roster of regular employees with work in lieu of hiring
regular employees.

To escape from the responsibility of carrying the load and additional cost of hiring regular manpower, firms would
rather overload their current roster of regular employees with work in lieu of hiring regular employees.

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This is the most plausible scenario that may transpire if the government will go for the full prohibition of
contractualization. Prudence dictates that contractualization should still exist in a case to case basis but with
government regulation to avoid abuses by the employers. Firms in the infancy stage should be allowed to some
extent to hire contractual employees until such time that firms can exist on its own and be stable enough to weather
the challenges of investment risks.

Firms in the infancy stage should be allowed to some extent to hire contractual employees until such time that firms
can exist on its own and be stable enough to weather the challenges of investment risks.

Unemployment and economic growth

With the current data on unemployment which stands at 5.8 percent, the incoming administration under the
leadership of presumptive president Duterte stands to inherit around 3.48 million people who are unemployed. This
practically puts to naught the 6.9 percent GDP growth the country was able to accomplish in the 1st quarter of 2016.

The growth component was mainly consumer-driven fuelled primarily by election spending estimated to be within
P10-12 billion. This amount of fund injection created temporary employment opportunities that generated an
income that contributed to the 1st quarter growth rate. This, however, is a short-term “economic bliss” that after
certain “honeymoon period” will go back to its previous dilemma of exclusive growth, an economy reserved for the
ruling oligarchy.

Countless growth have been experienced but the people who consider themselves poor remain unyielding, the
number of unemployed remain at more than 3 million. Graft and corruption remain unmoved, putting it in the upper
index of most corrupt nations of the world.

Tall order

Despite the tall order that awaits the incoming Duterte regime, the resounding mandate that he received during the
last election puts to emphasis the people’s high trust in his leadership. One thing going for the incoming president
that perhaps distinguishes him from his predecessor is the fact that he approaches the nation’s problem with
“coolness’ and serenity. If you are in this mood, it is most likely you will make a good account of yourself and your
decision.

His micro approach to the problem as exemplified by the news item he heard about the group of pushers arrested
in Tanauan, Batangas. The pushers were made to parade in the streets as if to imitate the traditional “Flores de
mayo” but this time renamed “Flores de Pusher,” for purposes of putting them to shame for their criminal acts.

Perhaps in jest, incoming president Duterte made pronouncements that these people may have been dead if he was
in the position of the mayor. His ability to put premium and emphasis even for this simple police matters if he
continues doing it during his term, will endear him to people. It shows that he does not want himself isolated from
the most basic problem of the society — the society that elected him and catapulted him to the highest position of
the land.

His ability to put premium and emphasis even for this simple police matters if he continues doing it during his term,
will endear him to people. It shows that he does not want himself isolated from the most basic problem of the society
— the society that elected him and catapulted him to the highest position of the land.

FAST FACTS: How the new Corporation Code makes business easier

The amended Corporation Code allows the formation of a corporation by a single person and grants a perpetual
corporate term.

MANILA, Philippines – Doing business in the Philippines is about to get easier, thanks to the amendments made to
the 38-year-old Corporation Code.

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President Rodrigo Duterte signed on Wednesday, February 20, Republic Act No. 11232 or the law which relaxes
several procedures in setting up a business in the country.

One-person corporation

The new Corporation Code now allows the formation of a corporation by a single person or one stockholder.

The old code required at least 5 stockholders in the formation of corporations.

It also removes the provision setting a minimum on the authorized capital stock.

The Securities and Exchange Commission (SEC) said this amendment allows more flexibility in pursuing business
because the lone stockholder can make decisions without having to seek board consensus.

"It also affords greater protection to the stockholder by limiting liability to the corporate entity," the SEC said.

Perpetual corporate term

The amended law also grants a perpetual corporate term for existing and future corporations, unless specified in
their articles of incorporation.

The old code set a 50-year term.

The SEC said this amendment would eliminate the possibility of businesses prematurely closing down because they
failed to renew their registration.

Moreover, the new law allows corporations with expired registration papers to revive their businesses.

E-filing, remote communication

The new law was also crafted to better suit the modern times.

It mandates the SEC to implement an electronic filing and monitoring system.

"So far, the commission has implemented a fully automated and online company registration system for the pre-
processing of corporations and partnerships, licensing of foreign corporations, amendments of the articles of
incorporation and other corporate applications requiring its approval," the SEC said.

The new law also allows the use of videoconferencing and teleconferencing during stockholder meetings.

Stockholders may participate and vote in absentia or without being personally in the meeting.

Directors or trustees may also participate and vote in regular and special meetings through remote communication.
However, they cannot join or cast their votes by proxy at board meetings.

Other features

The new also has a provision for an emergency board when a vacancy in a corporation's board of directors prevents
the remaining directors from constituting a quorum and consequently from making emergency actions required to
prevent grave, substantial, and irreparable loss or damage.

The vacancy may be temporarily filled from among the officers of the corporation by a unanimous vote of the
remaining directors or trustees.

The corporation must then notify the SEC within 3 days from the creation of the emergency board.

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Meanwhile, the amendments allow corporations to adopt alternative dispute resolution mechanisms for intra-
corporate issues except those involving criminal offenses and interests of third parties.

"Collectively, the amendments are aimed at encouraging entrepreneurship and the formation of new businesses,
improving the ease of doing business in the country, promoting good corporate governance, increasing protection
afforded to corporations and stockholders, and deterring corporate abuses and fraud," SEC Chairman Emilio Aquino
said.

"The passage into law of this measure is critical in our bid to improve the country's business climate and make our
economy more competitive with the rest of the world," said Senate Minority Leader Franklin Drilon, who pushed for
the measure.

Salient Changes under the Revised Corporation Code

Republic Act No. 11232, otherwise known as the “Revised Corporation Code of the Philippines” or “RCC”, was signed
into law by President Rodrigo Duterte on 20 February 2019. The RCC took effect on 23 February 2019, following the
completion of its publication in the Manila Bulletin and the Business Mirror. The new law updates the almost 39-
year old Corporation Code of the Philippines with the aim of improving the ease of doing business in the country.
Existing corporations affected by the new requirements of the RCC are given a period of two (2) years to comply
(Sec. 185).

Some of the salient amendments to the Corporation Code include:

1. Organization of Corporations

The RCC removed the absolute requirement of having a minimum of five (5) individuals in the formation of
corporations.

The RCC removed the absolute requirement of having a minimum of 5 individuals in the formation of corporations
(Sec. 10). The law now allows the establishment of a One-Person Corporation (OPC) composed of a single
shareholder, who may be a natural person, a trust or an estate. A shareholder may acquire all the stocks of an
ordinary stock corporation and apply for the conversion thereof into an OPC. In terms of liability, the single
shareholder claiming limited liability has the burden of affirmatively showing that the corporation was adequately
financed (Sec. 115, 116, 130, 131).

Stock corporations are still not required to have a minimum capital stock, unless specifically provided by special law.
Notably, in the revised form of the Articles of Incorporation (AOI), it is no longer required that the capitalization be
in “lawful money of the Philippines” (Sec. 14). Moreover, the RCC removed the requirement that 25% of the
authorized capital stock be subscribed and that 25% of the subscribed capital stock be paid for purposes of
incorporation as previously mandated under Section 13 of the Corporation Code, which was deleted in its entirety
(Sec. 12). However, the 25%-25% requirement was retained for any increase in the authorized capital stock (Sec. 27).

The corporate term limit of 50 years has been removed such that a corporation can now enjoy perpetual existence
unless expressly limited by its AOI. Such perpetual corporate term shall also apply to corporations incorporated prior
to the RCC, unless said corporations elect to retain a specific corporate term. The new law also states that a
corporation whose term has expired can apply with the Securities and Exchange Commission (SEC) for the revival of
its corporate existence, with all the rights and privileges under its certificate of incorporation and subject to all of its
duties, debts and liabilities existing prior to its revival. Upon the SEC’s approval, the corporation shall be deemed
revived and a certificate of revival of corporate existence shall be issued giving it perpetual existence, unless its
application for revival provides otherwise (Sec. 11). The RCC also extends the allowable period for non-use of
corporate charter from 2 years to 5 years from the date of incorporation. The certificate of incorporation shall be

25
deemed revoked as of the day following the end of the 5-year period. Meanwhile, a corporation which has
commenced its business but subsequently becomes inoperative for a period of at least 5 years may be deemed a
delinquent corporation and shall have a period of 2 years to resume operations. Failure to resume operations within
the period given by the SEC shall cause the revocation of its certificate of incorporation (Sec. 21).

2. New Classifications of “Corporations Vested with Public Interest”

In lieu of the expansion of application of the system of Independent Directors under the Securities Regulation Code
(SRC), the RCC has classified the following corporations vested with public interest, whose board shall have
independent directors constituting at least 20% of such board:

a. Publicly-held corporations under the SRC whose securities are registered with the SEC, corporations listed with an
exchange or with assets of at least P50,000,000.00 and having 200 or more holders of shares, each holding at least
100 shares of a class of its equity shares;

b. Banks and quasi-banks, non-stock savings and loan associations, pawnshops, corporations engaged in money
service business, preneed, trust and insurance companies, and other financial intermediaries; and

c. Other corporations engaged in businesses vested with public interest similar to the above, as may be determined
by the SEC.

3. Board of Directors/Trustees

With the introduction of the OPC, the minimum number of directors to incorporate is reduced from 5 to 1, while the
maximum is retained at 15 directors. For trustees, however, the RCC has removed the maximum number which can
be elected. Some of the changes in the qualification and term of the board of director or trustees include the removal
of the residency requirement for a majority of the board and the extension of the term of trustees from 1 year to 3
years (Sec. 22).

The new law allows stockholders or members, when authorized by the By-Laws or by a majority of the board of
directors, to vote through remote communication methods or inabsentia. A stockholder or member who participates
through remote communication or inabsentia will still be considered present for purposes of determining the
existence of a quorum (Sec. 23).

The RCC empowers the SEC, unilaterally or upon a verified complaint, and after due notice and hearing, to remove
members of the Board of Directors/Trustees who are determined to be disqualified to be elected to or to hold such
position (Sec. 27).

When there is a vacancy in the Office of the Director/Trustee which prevents the remaining directors from
constituting a quorum and emergency action is required to prevent irreparable loss or damage to the corporation,
the remaining directors are allowed to temporarily fill the vacancy from among the officers of the corporation,
thereby constituting an emergency board, subject to certain requirements (Sec. 28).

4. Corporate Officers

The RCC mandates a corporation vested with public interest to appoint a Compliance Officer, in addition to the
mandatory positions of President, Treasurer and Corporate Secretary. The law now also expressly requires that the
Treasurer be a resident of the Philippines (Sec. 24).

The election or non-holding of election of the directors, trustees and officers of the corporation is required to be
reported to the SEC, which is empowered under certain conditions to summarily order that an election be held (Sec.
25).

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5. Corporate Powers

Under Section 35 of the RCC, additional powers are expressly granted to corporations, namely: the power to enter
into a partnership, joint venture or any other commercial agreement with a natural person or another corporation
[Sec. 35 (h)]; and, for domestic corporations, the power to donate to a political party or candidate or for purposes
of partisan political activity [Sec. 35 (j)].

6. Shareholder Actions

The RCC now provides that if the date of the regular meeting of the stockholders or members is not fixed in the By-
Laws, the same shall be held on any date after April 15 of every year as determined by the Board of
Directors/Trustees. Written notices of regular meetings may now be sent to stockholders and members through
electronic mail and such other means as may be allowed by the SEC. The right of stockholders or members to vote
may now also be exercised through remote communication or in absentia, under rules and regulations to be issued
by the SEC governing participation and voting through remote communication or in absentia, taking into account
the company’s scale, number of shareholders or members, structure, and other factors consistent with the
protection and promotion of shareholders’ or members’ meetings (Sec. 49 and 57).

The law also allows an arbitration agreement to be included in the AOI or By-Laws of a corporation (Sec. 181).

7. Corporate Books and Records

If the corporation denies or does not act on a demand for inspection and/or reproduction of corporate records, the
aggrieved stockholder or member may report such denial or inaction to the SEC, which shall, within 5 days from
receipt of such report, conduct a summary investigation and issue an order directing the inspection or reproduction
of the requested records. This right to inspect is expressly made subject to confidentiality rules under prevailing laws
(Sec. 73).

With regard to the financial statements of a corporation, the RCC provides that if the paid-up capital of the
corporation is less than P600,000.00 or such other amount as may be determined appropriate by the Department
of Finance, the financial statements may be certified under oath by the President and the Treasurer, and need not
be certified by an independent certified public accountant (Sec. 74).

8. Foreign Corporations

The new law provides that within 60 days from issuance by the SEC of a license to transact business to a branch
office of a foreign corporation, said branch must deposit acceptable securities to the SEC with an actual market value
of at least P500,000.00 for the benefit of present and future creditors of the licensee. In addition, within 6 months
after the fiscal year of the licensee, the SEC may require the licensee to deposit additional securities or financial
instruments equivalent in market value to 2% of the amount by which the licensee’s gross income exceeds
P10,000,000.00 (Sec. 143).

A domestic corporation who acts as a resident agent of a foreign corporation must be of sound financial standing
and must show proof that it is in good standing as certified by the SEC (Sec. 144).

9. Investigations, Offenses and Penalties

Under the new law, jurisdiction over party-list organizations is transferred from the SEC to the Commission on
Elections (COMELEC), subject to the implementing rules to be jointly promulgated by the SEC and the COMELEC (Sec.
182).

The RCC also enumerates the various specific offenses and their corresponding penalties, with special emphasis on
fraud and graft and corrupt practices:

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a. Unauthorized Use of Corporate Name (Sec. 159);
b. Violation of Disqualification Provision (Sec. 160);
c. Violation of Duty to Maintain Records, to Allow Inspection or Reproduction (Sec. 161);
d. Willful Certification of Incomplete, Inaccurate, False or Misleading Statements or Reports (Sec. 162);
e. Independent Auditor Collusion (Sec. 163);
f. Obtaining Corporate Registration Through Fraud (Sec. 164);
g. Fraudulent Conduct of Business (Sec. 165);
h. Acting as Intermediaries for Graft and Corrupt Practices (Sec. 166);
i. Engaging Intermediaries for Graft and Corrupt Practices (Sec. 167);
j. Tolerating Graft and Corrupt Practices (Sec. 168);
k. Retaliation Against Whistleblowers (Sec. 169); and
l. Other Violations of the Code (Sec. 170).

10. Technological Updates

Aside from recognizing stockholder or member votes cast in absentia via remote communication methods, the new
law also allows the AOI and applications for amendments thereto to be filed with the SEC in the form of electronic
documents, in accordance with the rules on electronic filing that the SEC will promulgate (Sec. 13). The SEC is further
mandated to implement an electronic filing and monitoring system to expedite corporate name reservation and
registration, incorporation, submission of reports, notices and documents required by the RCC (Sec. 180).

PROS AND CONS:

After a long delay, the Senate has finally approved on third and final reading the Revised Corporation Code of the
Philippines, amending the 38-year-old Batas Pambansa Bilang 68.

Notable among the amendments to the present law is the provision on the number of incorporators. While the old
law allowed not less than five but not more the 15 incorporators to organize a corporation, Senate Bill 1280 allows
even one person to create a corporation. A corporation with a single stockholder is called a One Person Corporation.

According to the bill’s authors, the amendment aims to address problems in filling up the current requirement of at
least five stockholders for a corporation. The current practice, they said, is for certain investors to name even their
household members and hired help as incorporators just to comply with the present rule

The proposed measure, authored and sponsored by Senate Minority Leader Franklin Drilon and co-sponsored by
Senate Majority Leader Juan Miguel Zubiri, was approved with 20 affirmative votes and no negative votes and
abstentions.

The question being asked now is whether this One Person Corporation is the same as a limited liability company or
LLC.

It appears that it is not. An LLC in the United States is a business structure that combines the pass-through taxation
of a partnership or sole proprietorship with the limited liability of a corporation. LLCs are hybrid entities that combine
the characteristics of a corporation and a partnership or sole proprietorship.

Unlike a sole proprietorship where the liabilities of the business entity are also the liabilities of the proprietor, in the
case of corporations, the liabilities of the latter being a separate juridical entity are not the liabilities of the
stockholders who constitute it. Since corporations have limited liability, the assets of the stockholders cannot be
seized to repay the debts attributed to the corporation.

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In the case of a partnerships, only limited partners have limited liability while general partners have unlimited
liability.

Another difference between our proposed One Person Corporation and the LLCs in the US is in the manner of
taxation. In the US, sole proprietorships, partnerships, LLCs, and S corporations (as opposed to traditional C
corporations which are taxed at the corporate level and which can have more than 100 shareholders), are pass
through entities for federal income tax purposes, meaning these entities are not subject to income tax. Instead, the
owners are directly taxed individually on the income that they receive. The LLCs profit or loss will be reported on an
individual member’s Schedule C as if it were a sole proprietorship.

A single-member LLC, like a traditional LLC, can also choose to be taxed as a corporation or as a separate business
entity. But by default, the US Internal Revenue Service classifies an LLC as either a sole proprietorship if it has only
one member, or a partnership, if it has more than one.

But it is still considered a legal entity separate and distinct from its owner and therefore, the liabilities of the LLC are
separate from those of the owner. At least, in this respect, they are the same as our One-Person Corporation.

I remember my professor at the University of Southern California giving this example to illustrate the advantages of
a single-member LLC, which I believe also applies in the case of the proposed One-Person Corporation.

Say you are a doctor practicing your profession, and very successful financially. You own several income-generating
properties, including a building. One day, a guest enters this building and slips, sustaining head injuries. The guest
files a personal injury case.

If the doctor created a single-member LLC listing the building as its asset and the guest files the case against the LLC,
if the LLC does not have sufficient assets to satisfy the court-awarded damages, the guest cannot go after the other
assets of the doctor.

If the Senate version of the bill is passed into law (I heard that the House of Representatives has its own version of
the bill), individuals with multiple assets can also create several One Person Corporations and distribute his assets
among these corporations. That way, the creditors of the corporation will only be limited to the assets of the
concerned corporation and cannot go after the assets of the other corporations, even though they have the same
single owner.

According to Drilon, the amendment allowing corporations with single stockholders will provide an environment
conducive not just for big business, but will make the corporate vehicle an appealing prospect for start-ups and
entrepreneurs.

Maybe our legislators can also take a look at the taxation aspect of single member LLCs and find out if this can be
made to apply to our One Person Corporation.

Why Are Weighing Corporation Pros and Cons Important?

Weighing the pros and cons of starting a corporation are important because you aren't required to form a
corporation when you start your business. Other types of businesses include:

Sole ProprietorshipA single person runs this business. It is unincorporated. However, the business and the individual
are taxed as one. To file taxes, you use a Standard Form 1040 and a Schedule C.

Limited Liability Corporation (LLC)- A single person or group can run this business. It combines pass-through taxation
with the limited liability of a corporation. However, it is not actually a corporation.

Pros of Forming a Corporation

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  Protection from Legal Liability
o Once you've filed for incorporation, you have a limited liability over the business' debts and
activities. Legally, the corporation is separate from you. To maintain limited liability, you must
follow a number of corporate formalities.
 Attracting Investors
o The ability to issue stock is a selling point when attracting investors.
 Stock and Stock Options for Employees
o Offering stock and stock options to employees allows you to attract top-notch talent.
 Organization
o Corporations have an established power structure from top to bottom. This includes directors,
officers, and shareholders. Each group has a defined set of roles and responsibilities.
 Shareholder Protection
o Creditors cannot go after shareholders. This also gives shareholders less privacy in return for
limited liability.
 Right to Due Process and Equal Protection
o According to the Constitution's Fifth and Fourteenth Amendments, corporations have the rights of
due process and equal protection in any legal proceedings.
 Freedom of Speech
o Unless forbidden by state government, a corporation has the right to free speech, just as a citizen
would.

Cons of Forming a Corporation

 Tax Liability
o A traditional corporation's profits are subject to double taxation, meaning the corporation is taxed
on its earnings. Shareholders who earned profits as dividends or capital gains are also taxed. This
is usually only found in large businesses. Small businesses can avoid this by choosing an "S"
Corporation status.
 Time and Cost
o Document preparation and fees paid to your state's Secretary of State Office cost time and money.
 More Complicated
o Corporations are much harder to form and maintain than other entities. They must also publish
annual reports and other data. This allows creditors to assess their creditworthiness.
 Following Corporate Formalities
o To make sure you are actually functioning as a corporation, the government requires you to follow
formalities. This includes shareholder meetings, maintaining financial independence, board of
directors' meetings, and records of corporate activities. These are extra costs that don't add real
value to the company.
 The California Corporation Tax
o If you start a corporation of any kind in California, you must pay an annual fee of $800.
 Two Tax Filings
o You must file separate income and business taxes. You can't deduct business losses on your own
tax return.
 Heavy Regulation
o Federal, state, and local entities impose heavy regulations on corporations. This can cost a lot of
money and prevent profits and growth.
 No Right to Legal Counsel
o Because a corporation isn't an individual, it cannot receive a court-appointed attorney if it cannot
afford one as outlined in the Sixth Amendment.
 Self-Incrimination
o A corporation has no protection against self-incrimination as described in the Fifth Amendment.

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