These mechanisms are distinct from Public-Private Partnerships (PPPs) and are expressly excluded from the scope of the PPP Code of the Philippines (Republic Act No. 11966) and its Implementing Rules and Regulations (IRR). They are governed by corporate law, special charters, administrative policies, local ordinances, and public sector governance frameworks.
Nature
Corporatization refers to the process by which an administrative agency, local government unit (LGU), government-owned and controlled corporation (GOCC), or government instrumentality with corporate powers (GICP) reorganizes a function, asset, or service into a stock corporation.
This results in the creation of a separate juridical entity with corporate powers under the Revised Corporation Code.
A subsidiary, on the other hand, is a corporation owned or controlled by a parent government entity or GOCC, typically through majority shareholding. Subsidiaries allow government entities to ring-fence risks, specialize operations, and pursue commercial or revenue-generating activities through a corporate structure.
These arrangements are not PPPs because there is no contractual partnership between the government and a private proponent under the recognized PPP modalities (e.g., build-operate-transfer, joint ventures, and lease arrangements under the PPP Code). Instead, they involve equity participation in a corporate entity, where ownership and governance are exercised through shares and a board of directors.
Authority
LGUs, GOCCs, and GICPs may establish corporations or subsidiaries, subject to applicable laws. For GOCCs and their subsidiaries, approval by the Governance Commission for GOCCs (GCG) is generally required to ensure fiscal discipline, strategic alignment, and compliance with governance standards.
For LGUs, the creation of or participation in a corporation typically requires authorization by the Sanggunian through an ordinance, along with compliance with statutory and constitutional limitations on corporate powers and investments.
In all cases, the corporation must be formed through:
The entity created is a stock corporation. Where government ownership or control is present, it is classified as a GOCC or a subsidiary thereof.
Private sector participation
Private sector participation is allowed through equity investment, including Initial Public Offerings (IPOs) or stock exchange listings. These mechanisms promote competition, transparency, and accountability by subjecting the corporation to market discipline, disclosure requirements, and regulatory oversight.
The private sector may hold either a minority or majority share, depending on policy, legal constraints, and strategic objectives. This flexibility enables the government to mobilize capital while retaining or relinquishing control as appropriate.
Illustrative projects
Corporatization and subsidiaries may be used for a wide range of projects, including:
Conclusion
Corporatization and subsidiaries offer government entities a corporate, market-oriented approach to public service delivery and asset management.
While they may involve private sector investment, they are not PPPs but rather corporate undertakings governed by company law and public sector oversight, providing an alternative pathway for development anchored on ownership, governance, and capital markets.
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