(a) What are the main form of business organisation for medium and large scale enterprises in this economy?

 

Medium and large-scale enterprises are normally in the form of corporations. Although partnerships are a recognized form of conducting business in the country, none of the large business enterprises in the country today are organized as such.

 

(b) Is there a system of registration for these business organizations? If so, briefly describe.

 

Yes. The Corporation Code, which is applicable to corporations in general, provides that a corporation is incorporated upon the approval by the Securities and Exchange Commission ("SEC") of its Articles of Incorporation. For particular corporations such as banks, insurance companies, investment companies, brokerage houses, additional registrations may be required

All corporations are required to submit annual reports to the SEC such as the general information sheet and/or the affidavit of non-holding of annual meeting and the financial statement. Once filed with the SEC, such documents may be examined and copied by the public.

 

(c) Are there any minimal capitalisation requirements for these enterprises?

 

The general provision of the Corporation Code requires that upon incorporation the paid-in capital of a corporation shall be at least P5,000. Some corporations have minimum capital requirements such as: (1) banks - Expanded commercial banks - 5.4 Billion Pesos Commercial banks - 2.8 Billion Pesos; Insurance companies - average of about 10 to 15 Million Pesos; stock broker and dealer of securities - P1 Million Pesos.

 

(d) Briefly describe the main features of each type of these business organisations, by reference to public/private/state ownership and management; accounting and auditing responsibilities (particularly the standards which apply to accounting and auditing practices); director and management responsibility (including, if relevant, possible liability for debts); and the role of regulatory authorities regarding these enterprises.

 

Public/Private/State Ownership

Although the largest corporation in the country (i.e., the National Power Corporation) in terms of gross revenues is owned by the state, substantially all of the major corporations in the country are owned and controlled by private entities/individuals. State-owned enterprises are slowly being privatized, a policy which started in the Aquino administration and which was more vigorously pursued by the Ramos administration. Thus, the national flag carrier and the water utility for Metropolitan Manila was bidded out and plans are being finalized for the eventual privatization of National Power Corporation. Recent policy statements of the newly-installed Estrada administration indicate adherence to this privatization policy.

Management

The board of directors exercise all the corporate powers of corporations, conducts all its businesses and controls all its property. It is not uncommon however for large corporations to have an executive committee.

Directors are not generally held liable for the debts of the corporation unless the directors guaranteed such debts. Under Section 31 of the Corporation Code, should they wilfully and knowingly assent to patently unlawful acts of the corporation or are guilty of gross negligence or bad faith in arranging the affairs of the corporation, they become jointly and severally liable not only for the damages caused to the corporation but also those suffered by third persons, including creditors. (1 Campos, The Corporation Code, p.780)

The Role of Regulatory Authorities Regarding These Enterprises

The SEC is the administrative body that has jurisdiction and supervision over all private corporations. For certain types of corporations, however, (i.e., banks, insurance companies), another government agency has primary jurisdiction over them.

Under the rules promulgated by the SEC to implement the Revised Securities Act (RSA), a corporation is subject to rigid reportorial requirements if it falls under any of the following categories:

(a) issuers which have sold a class of their securities pursuant to a registration under Section 4 of the Revised Securities Act;

(b) issuers with a class of securities listed for trading on an exchange; and

(c) issuers with assets of at leastP/ 50,000,000 and 200 or more shareholders each holding at least 100 shares of a class of its equity securities as of the first day of any fiscal year;

These companies must also comply with RSA Rule 48-1 also known as the Rules and Regulations Covering Form and Content of Financial Statements.

Accounting and Auditing Responsibilities (particularly the standards which apply to accounting and auditing practices)

The financial statements filed by corporations with the SEC are made available to the general public. To ensure that these corporations comply with the financial reporting rules and principles contained in the Generally Accepted Accounting Principles , the statements are required to be examined by an independent certified public accountant (CPA). The CPA follows a prescribed set of procedures and tests (called generally accepted auditing standards or GAAS) to verify the information contained in the reports, and delivers an opinion as to the fair presentation, in all material respects, of the company's financial position and results of operations. Because the examination of the CPA is done on a test basis, the CPA is unable to validate all financial disclosures made by the company. Indeed, due diligence by the CPA is already established by adherence to GAAS. (Ilano, et. al., Philippine Corporate Finance, p. 30)

The provisions of RSA Rule 48-1 are more stringent and more detailed.

(a) Are there any relevant observations to make concerning political, social (powerful family), financier (bank equity or involvement) or cultural controls or influences in respect of these types of business organization?

 

Politicians are perceived to be the most powerful sector as they can influence, to a significant extent, the granting of loans by government controlled financial institutions, the giving out of highly profitable government concessions and contracts and even, at times, the bailing out of a soon-to-be bankrupt enterprise. Hence, crony capitalism is common; and it has been, and still is, a very fertile ground for corruption. Politicians take advantage of this especially during election time by demanding hefty campaign contributions from corporations in return for doling out favors once in office.

It should be noted though that not all large corporations in the country take advantage of this situation, as numerous large corporations do exist, and still manage to do well, without having to obtain a politician's backing.

For some banks, pressure to give a loan to a particular corporation is exerted by way of a large and favored client of the bank telling the latter that the request by a particular corporation for a loan should be granted, as repayment will never be a problem.

 

[Having identified the types of business organization, they will now (for ease of reference) be referred to as `corporates' and, thus, `corporate borrower', `corporate debtor' and so forth]

1.The rules were adopted in 1996 by the SEC in cooperation with the United States Agency for International Development

2. Financial statements are prepared in accordance with Generally Accepted Accounting Principles or GAAP, which is a set of externally imposed accounting and reporting rules and standards for financial statements issued to the general public. As the term implies, the principles and rules contained in GAAP were not scientifically nor objectively determined at the onset but had evolved through continued usage and acceptance by accountants and the financial community at large. These conventions were formalized, summarized and rationalized by the Accounting Standards Council (ASC), a body formed in 1981 and tasked with establishing and improving accounting standards that will be generally accepted in the philippine. Presently, the Statement of Financial Accounting Standards (SFAS) and Interpretations issued by the ASC constitute GAAP in the philippine. There are 26 SFAS as of April 1996. Final occurrence by the Professional Regulation Commission is a requirement for an SFAS to become part of GAAP. Philippine GAAP has borrowed heavily from U.S. GAAP. In fact, in the absence of any pronouncement by the ASC on a specific matter, the statements, recommendations and standards issued by the Financial Accounting Standards Board of the U.S. are used. (Philippine Corporate Finance, p. 30)