Republic of the Philippines

CAGAYAN STATE UNIVERSITY-CARIG CAMPUS

Tuguegarao City, Cagayan

UNIT 3 PUBLIC CORPORATIONS

1.0 INTRODUCTION

In this Unit, students would be introduced to the concept of Public Corporations. This is to enable
you to know the definition, meanings, and the origin of public corporation. The comprehension of any
concept depends on the analysis, ists features, problems, and prospects.

2.0 LEARNING OUTCOMES

At the end of this Unit, a student should be able to:
1. know the definition of public corporation;
2. trace the origin of public corporation; and
3. know the concept behind pubic corporation.
3.0 MAIN CONTENT
3.1 Definition of Public Corporation
A Corporation is an artificial being created by operation of law having the right of
succession and powers, attitudes, and properties expressly authorized by law or incident
to its existence.
CLASSIFICATION OF CORPORATIONS
PUBLIC - organized for the government of a portion of the State.
PRIVATE- formed for some private purpose, benefit, aim or end.
QUASI-PUBLIC- is a company in the private sector that is supported by the government with a public
mandate to provide a given service. Therefore, a private corporation that renders public service
or supplies public wants. Examples include telegraph and telephone companies, oil and gas, water,
and electric light companies, and irrigation companies.
NOTE: Criterion to determine whether a corporation is public - the relationship of the
corporation to the State, that is, if created by the State as its own agency to help
the State in carrying out its governmental functions then it is public, otherwise, i t is
private.
A Public Corporation can be defined as “financially semi-autonomous body created by an Act of
Parliament to provide goods and services on a commercial basis and is ultimately responsible to the
minister through the parliament and the general public.”
3.1.1 Meaning of Public Enterprises
A public enterprise is viewed as an artificial person which is authorized by law to carry on particular
activities and functions. It essentially has the features of several individuals who act as one. It is described
as a corporate body created by the legislature with defined powers and functions and independently
 having a clear-cut jurisdiction over a specified area or over a particular type of commercial activity. It is a
part of government apparatus and three implications are hereby highlighted.
Public Enterprise, by virtue of its intricate relationship with government, is an instrument of public
policy and its primary mission is in connection with governmental objectives and programmes. It is,
therefore, naturally under governmental control.
Second, a public enterprise by its nature mostly manages public resources, especially public money
and this means that attention must be paid to mechanisms for enforcing accountability.
Third, the combination of financial and economic objectives with social and political arms
invariably makes it difficult to devise appropriate performance measurement instrument.

Self Assessment Exercise 1

Define the term “Public Corporation.”

3.1.2 Origin of Public Corporation

The origin of public enterprises could be traced to early 20th century when government intervened in
economic management through departmental organizations, which did not involve creating autonomous
public bodies. In the alternative, it granted license to private enterprise for the management of natural or
national monopolies and where public bodies were involved n managing economic ventures, such bodies
did not enjoy financial autonomy.
Public corporations made a very strong appearance after World War I for a variety of reasons
including managing the consequences of the war especially the economic crisis of the 1930s.
Between the two world wars political and ideological consideration prompted the establishment
of parastatals in the former colonies. The movement toward the establishment of public
enterprises received new impetus after the World War II for reasons related to both ideological and
political considerations and economic efficiency.
There are several key positions required in all companies in the Philippines. In light of this, it is
important to familiarize yourself with the corporate structure in the Philippines.

Corporate structure in the Philippines

There are three types of domestic corporations in the Philippines: 100% Filipino-owned Domestic
Corporation. 60% Filipino-owned and 40% Foreign-owned Domestic Corporation. Regardless of the
type, the corporate structure consists of the following:

 Shareholder(s)
 Director(s)
 Corporate Officers
 President
 Treasurer
 Corporate Secretary
An individual may hold more than one of the above roles in a company. We discuss each of these in
further detail below.

Shareholders in a Corporation in the Philippines

The table below shows the requirements for shareholders in the Philippines:

Number of
Type of Corporation Who can be a shareholder
Directors

Natural person
Partnership
Association
Domestic Corporation 2 to 15
Corporation

*foreign or local

Natural person
Trust
One person Corporation 1 Estate

*foreign or local

The 60-40 equity rule on owning a business in the Philippines

The 60-40 equity rule was enacted by the Philippine government in order to regulate foreign investments
and businesses in the country. The Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179,
1996) states that at least 60% of the business should be owned by a Filipino citizen, while the rest can be
owned by the foreign investor.
This Foreign Investment Act contains policies and rules that govern the registration of foreigners looking
to do business in the Philippines. The Philippine government welcomes these kinds of foreign
investments because it contributes to economic development.It generates jobs and allows Filipinos
the opportunity to earn higher wages.
If you’re a foreign investor who’s looking to set up a sole proprietorship, partnership, or a corporation in
the Philippines, here are a few important things you need to know about the 60-40 equity rule:
Foreigners can hold shares in a domestic corporation if the relevant industry allows for foreign
ownership.
Similarly, a foreign investor can open a one person corporation if the industry allows 100% foreign
ownership.
The percentage of allowed foreign ownership depends on the industry. Many industries allow for full
foreign ownership. However, there are a few which require majority Filipino ownership. The table
below shows examples of businesses that allow foreign ownership.
Be mindful of the Negative List
The Foreign Investment Negative List is a list of activities in the Philippines that foreigners are not
allowed or are limited to own or invest in. The list is divided into two parts: List A and List B.
List A allows little to no foreign equity at all based on principles stated in the Philippine
Constitution and other specific laws. The activities that don’t allow foreign equity are:
Mass media
Practice of pharmacy, radiologic, criminology, forestry, law professions
Retail trade enterpriseswith less than USD$2.5M paid-in capital
Cooperatives
Private security agencies
Small-scale mining
Using marine resources and natural resources
Owning and managing cockpits
Manufacturing and distributing nuclear, biological, chemical, radiological weapons
Manufacturing of pyrotechnic devices
Other items in List A allow up to a limited amount of equity for foreign investors. The activities
are:
Up to 20% foreign equity
Private radio networks
Up to 25% foreign equity
Private recruitment
Contracts for public works that are locally-funded
Contracts for the construction of structures that are defense-related
Up to 30% foreign equity
Advertising
Up to 40% foreign equity
Exploration, development, and usage of natural resources
Operation of public utilities
Educational institutions aside from those put up by religious groups and mission boards
Production and trading of rice and corn
Contracts for the supply of materials, goods, and commodities to government-owned corporations
Facility operator of an infrastructure
Deep-sea fishing operations
Adjustment companies
Owning condominium units
List B also has a limited amount of foreign ownership, since it involves the security, defense, health,
morals, and protection of Filipinos. The maximum number a foreigner can own is 40%.
Activities on this list are:
Manufacturing, repairing, storing, and distribution of products that need the approval of the Philippine
National Police clearance
Manufacturing, repairing, storing, and distribution of products that need the approval of the Department
of National Defenseclearance
Manufacturing and distributing dangerous drugs
Owning sauna and steam bathhouses
Owning massage clinics
All forms of gambling
Domestic market enterprises with less than USD 200,000 paid-in equity capital
If the business you’re planning to set up is not on the Foreign Investment Negative List, the 60-40 equity
rule may apply to you and your business, if the company does not meet the USD 200,000 paid capital
requirement and most of your revenue will come from the Philippines
The minimum paid-in capital is USD 200,000
As a foreign investor, and if you want to fully own your business, or at least own the majority of the
business, you must invest a minimum of USD 200,000. This requirement can be brought down to USD
100,000 as long as it meets the advance technology requirement of the Department of Science and
Technology and if you have at least 50 direct employees.
An exception to this rule is if your company exports goods or services. The amount that you’re exporting
should be around 60% of your gross sales. If that’s the case, your business now becomes a foreign-owned
export enterprise in which the 60-40 equity rule does not apply.
For foreign investors who are seeking to set up a sole proprietorship, they must register with the
Department of Trade and Industry (DTI). For the establishment of partnerships and corporations,
investors must register with the Securities and Exchange Commission.
A Filipino partner must have at least 60% ownership
If the USD 200,000 is too steep, and the revenue of the company you wish to establish will mostly come
from the Philippines, it’s time to find a Filipino partner. Note that your Filipino partner must own at least
60% of the business. Being a company majority owned by Filipinos, the USD 200,000 paid in
capitalization requirement will no longer apply.

Liability of Shareholders in a Corporation in the Philippines

Shareholders of a corporation in the Philippines have limited liability. As such, they will not be personally
liable for the corporation’s debts. Should the company fail, their personal assets will be safe. The extent
of their liability is the same as the value of their investment.
The factors that account for the phenomenal increase include the evolution of the Federal
administrative structures from four units in the 1950s to twelve in 1976, twenty-one in 1987,
thirty in 1991 and thirty-six in 1996 and the oil boom and successive governments commitment
to making public enterprises an instrument of state economic intervention in the 1970s.

Self Assessment Exercise 2

State two mainfactors for the establishment of public enterprises.

3.2 Reasons for the Establishment of Public Corporations

There are many reasons for the establishment of public enterprises. They include:
• the desire to use the public enterprise as an instrument of effective plan implementation in a
context where it appears a futile devise; a development plan for the private sector.
• the need to secure economic independence.
• the urgent desire to assure government control over “strategic” sectors of the economy, e.g.
the Central Bank. the need to separate some activities from the civil service and allow more
autonomy in their running.
• the perceived need to provide employment for the citizens in context where the private sector
offers very lucrative employment opportunities.
• the need to ensure state control of key profitable enterprises with a view to generating
revenues that will add to available national capital for financing development programmes
and projects.
• the desire of some socialist-oriented regimes to use sate control of key profitable enterprises
to pursue the objectives of preventing the concentration of wealth or of the means of
production and exchange in the hands of few individuals or of a group, i.e., promoting
equitable distribution of wealth.

3.2.1 Classification of Public Corporation

Public Corporations are classified into three:

• Public/Statutory;
• State-owned; and
• Public/Private Partnership.

Public/Statutory Corporations
These are enterprises which arise when the government assumes responsibility for the
management of an economic or social pursuit through a special entity that has its own legal
personality and still keeps some of the special prerogatives or privileges associated with a
governmental organization.
 Statutory Corporation (or Public Corporation) refers to such organizations that are incorporated
under the special Acts of the Parliament/State Legislative Assemblies.Its management pattern, its
powers, and functions, the area of activity, rules, and regulations for its employees and its relationship
with government departments, etc. are specified in the concerned Act.
For example, Central or State bank of any country is usually a Statutory Corporation.
The blend of these features is aimed at enabling the organization to function effectively as an
autonomous body while it remains an instrument of government policy. Enterprises that fall under
statutory corporations include Central Bank of Nigeria (CBN) and Nigerian Television Authority
(NTA).
State-Owned Companies
A government-owned corporation is a legal entity that undertakes commercial activities on
behalf of an owner government. Their legal status varies from being a part of government
to stock companies with a state as a regular stockholder. There is no standard definition of a
government-owned corporation (GOC) or state-owned enterprise (SOE), although the two terms
can be used interchangeably. The defining characteristics are that they have a distinct legal form
and that they are established to operate in commercial affairs.
In the Philippines, state-owned enterprises are known as government-owned and controlled
corporations (GOCCs). They can range from the Social Security System (SSS) and
the Philippine Coconut Authority with no counterparts in the private sector, to Land Bank of the
Philippines, a wholly government-owned bank that competes with private banks. A number of
government-owned and controlled corporations, especially those that were seized by the
President Ferdinand Marcos during his time as the leader of the Fourth Republic of the
Philippines, were given back to the original owners by the end of the 20th and the beginning of
the 21st century, including Philippine Airlines (PAL), Philippine Long Distance Telephone
Company (PLDT), Philippine National Bank (PNB), and ABS-CBN Corporation.
Public/Private Partnership
These are enterprises where the government is the majority shareholder in a partnership with

private entrepreneurs. In such companies government usually dominates the board since it is the

major shareholder. I n line with the Duterte Administration’s thrust of regional development, the

Public-Private Partnership (PPP) Center has launched its Local PPP Strategy in 2017 which is

aimed at providing strengthened support to local government entities in developing and

implementing their infrastructure and development projects.

3.2.2 Characteristics of Public Corporation

Public corporation came into existence as a result of an Act passed by the legislature or a decree
under a military rule. Public enterprise also defines its aims and objectives, powers and duties,
immunities, the form of management and relationship with established departments and
ministries.
It is a legal person, capable of suing and being sued, entering into contracts, acquiring and
owning property in its own name and can also dispose of property in its own name and can also
dispose of property than ordinary government departments. It is wholly owned by the state.
Except for appropriations to produce capital or to cover losses, a public enterprise is usually
independently funded or financed. It obtains its funds from the treasury or the public and from
revenues derived from the sale of goods and services. It is authorized to use and re-use its
revenues.
It is generally exempted from most regulatory and prohibitory statutes applicable to expenditure
of public funds. There are no hard and fast rules behind them in the matter of making contracts
of buying and selling, works, etc. Thus a great deal of liability and discretion is left for the
management in the matter of procedure. It is ordinarily not subject to the budget, account and
audit laws and procedures applicable to government departments.
Excluding the offices taken from government departments on deputation, the employees of
public corporations are not civil servants and are not governed by government regulations in
respect of conditions of service. The recruitment is not subject to civil service rules, promotion
is by seniority and personnel can be fired easily, if they are incompetent.

Corporations are free from the control of the legislature.

3.3 Control of Public Corporations

3.3.1 Management and control of Public Corporations

The management and control of public corporations are necessary in order to have effective and
efficient public enterprises. The management of public corporations is done through the
management boards and the policy board.

TheExecutive Board
In the executive board, majority of the board are staff of the organisation. They are usually the
heads of the various departments of the organization. However, a few outside representatives are
brought to be in charge of some outside interest.

ThePolicy Board
Majority of the members of the policy board are from outside the organization with few
members from within the organization. The policy board is responsible for managing all the
policy decisions of the organization, but the implementation of policies and the day-to-day
operation of the organization are carried out by the Managing Director. This method is applied
to most public corporations in Nigeria.
Control of Public Corporations
Even though public corporations are created to enable them have some degree of freedom to

manage their affairs, they are still subject to various levels of control.

Ministerial Control
The supervising minister controls the public corporations under his portfolio in the following
modes:
i. By the appointments of Board members
Since the minister is politically responsible for appointing members of the board, he can
dissolve it, if he is not satisfied with their performance. These controls may include the
appointment of external auditors to audit the account of public corporations, re-
organisation of departments and controls on borrowing.

ii. Parliamentary Control

This control is necessary to ensure that the operation of public corporations is in
accordance with public policy. Such a control is through the Annual Report. Public
corporations are expected to submit comprehensive annual reports of their activities to
the parliament through the minister and such reports are tabled before the parliament.
3.3.2 Performance and Probes of public commissions of Inquiry
Into Public Enterprises
3.3.3 Privatisation and Commercialisation
Privatization is the fact that business should be left for those who are better qualified to handle
them, which is the private sector, while the government concentrates on its core duty of
governance and policy regulation through the ministries. Government involvement in business
takes the form of regulation and this is done through its agencies.
The main motive about government regulation in a purely private sector, amongst other things, is
to achieve public policy objectives of financial stability, high economic growth, stable
prices,full employment, levels of output and equilibrium and balance of payment’s position.
This privatization, without adequate regulatory agency measures, will mean allowing laissez-
faire attitude pervade the economy which may lead to what is known as economic disorder and
financial chaos. Businessmen driven by the pursuit of profit, employ both ethical and unethical
means. It is only law that will restrain their activities thereby protecting the people, business
and society in general.
Commercialisation: This is the re-organisation of enterprises wholly or partly owned by the
government in which such commercialized enterprises shall operate as a profit-making
commercial venture and without subvention from the government.
The main reason behind the commercialization projects includes:
1. to restructure and rationalize public enterprises to ensure an effective, cost-conscious and
goal-oriented management and staff whose future is linked with the fortunes of the
organization they operate.
 2. to undertake a comprehensive review of the accounting and management information
system of the parastatals with a view to installing and maintaining modern and effective
accounting systems which will produce promptly the necessary data for monitoring their
financial and operational performance.
3. to re-orientate the enterprises for commercialization towards a new horizon of
performance improvement, viability and overall efficiency through the enforcement of strict
commercial principles and practices.
4. to check the present absolute dependence on the treasury for funding the otherwise
commercially viable parastatals through a more realistic capital structure which will enable
them approach the capital market to fund their operations without government guarantees.

3.4 Analysis and Types of Organisations

According to Spiers (1975) organisations can be analysed through six (6) different perspectives:

Organisations as Machines
The most basic of all approach to the study of organization assumes that organizational
behaviour can be considered to be most usefully described in terms of machines. According to
him, if one supposes that organizations can in some sense, be perceived as machines, the
following consequences ensue.
First, the conception of organsiations as a system of interrelated parts predisposes one to think
that coordination is a primary task in the evaluation of organizational behavior.
Second, this necessitates the definition of functions in relation to work to be done, both for
separate parts of the organization and for interrelated parts.

Third, behaviour and activity are viewed primarily in terms of their work coordination.

Fourth, unsatisfactory circumstances are viewed in the same mechanical sense.

Organisations as needs and Responses

There are certain thinkers who give more emphasis to structure and function in the interpretation
of organizational behavior. The functionalist approach mainly concentrates on needs and
responses to needs.

He defines needs in terms of the “goals” or purposes of:

(a) an individual;
(b) groups within the organization;
(c) the organization as a whole;
(d) a group order than the organization but less than the society; and
(e) the society itself.

Organisation as Societies
This analysis closely resembles the functionalist approach. It views the organization as a
miniature society. The functionalists believe that the central problem from a society as a whole
is the reconciliation of varying needs and interests of its members. The social functionalism as
this may be called, points out the prior necessity of a shared value system in order that such
reconciliation may take place.
The broad administrative consequence of this kind of approach is that there is a predisposition to
see the organization not simply as a system of relatively discrete and interrelated parts but as a
community of people. The structure of this community is analogous to the structure of the
society at large. This conception aids in understanding the internal life of an organization.
An organization can be seen as an individual person. Instead of seeing organizations as elements
in society-wide system, this approach concentrates on the experience of the individual member.
This human relations approach stresses the need for organizations to make provision for the
adjustment of individual psychological needs as expressed through small group relationships, to
the wider needs of an organsation’s behavior.

Organisation and the Technological Core

There are some theorists who give importance to the concept of socio-technical system. This
means that in any organization there is always a kind of technological core. In administration,
the work processes of routine information systems could be regarded as the technological core.
They state that the consideration of internal technology must have certain important
consequences for administrative section. First, attention is shifted to the physical environment of
the work process. Second, the conception of the person and his physical environment leads to
much more flexible possibilities to see that changing technology or even the technical expression
of changing economic circumstances may have psychological effects because of its impact on
the system.

Organization as a Culture
This theory states that the activities of persons in organizations cannot be understood apart from
meanings given to them by the persons themselves, colleagues, supervisors and officials, goals
which condition their actions and relationships.
Republic of the Philippines
CAGAYAN STATE UNIVERSITY-CARIG CAMPUS
Tuguegarao City, Cagayan

The main impact of this cultural approach is that individuals and groups are seen as
constrained, not by formal structures or even beliefs but by roles and expectations,
personally concerned, which in turn determines norms in an essentially relative fashion.
Secondly, it is assumed that the organizational change and possibilities for change to
have taken account of these roles and expectations. It also diverts attention towards the
exploration of internal sub-cultures and subtle cultural factors which determine norms
and attitudes to work, authority and types of organization.

4.0 CONCLUSION

This Unit dwelt mostly on public corporations, the definitions, origin, reasons for
establishment, classification and characteristics of public corporations/enterprises.
There was also control and typologies.

5.0 SUMMARY

This Unit was able to x-ray all the issues as regards public corporation.

6.0 ASSESSMENT.

Note: answers should not exceed per item into 300 maximum words.

1. Give a thorough analysis of organizations 10 pts.

2. Trace the origin of Public Corporation. (Philippines) 10 pts
3. Why should Public Corporations be privatized? 10 pts.

7.0 REFERENCES/FURTHER READING

Ujo, A. A. (1994). Understanding Public Administration. Kaduna: Solmora Ventures

Ltd

Fubara, B. A. (1983). Government in Business Management in Nigeria. Lagos:

Spectrum

Sexty, R. W. (1985). Currency Issues in Public Enterprises, Commercialisation

and Privatisation. Public Sector, 8 (4)