LAW ON LOCAL GOVERNMENTS: CORPORATE POWERS OF LOCAL GOVERNMENT UNITS (LGUs)

I. Introduction to Corporate Powers of LGUs

Local Government Units (LGUs) in the Philippines, composed of provinces, cities, municipalities, and barangays, are granted specific corporate powers under the 1987 Constitution and Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC). These corporate powers enable LGUs to function as corporate entities with distinct legal personalities, allowing them to enter into transactions, contracts, and agreements to carry out their mandates.

The corporate powers of LGUs are essential in empowering local governments to act in their proprietary capacity and achieve local autonomy. Section 22 of the LGC serves as the fundamental provision granting LGUs their corporate powers.

II. General Corporate Powers (Sec. 22, Local Government Code)

Section 22 of the Local Government Code delineates the corporate powers of LGUs as follows:

To Have a Continuous Succession in its Corporate Name
- LGUs have perpetual legal existence under their corporate names, ensuring that they can continue to function as legal entities even as their elected officials change through elections.
To Sue and be Sued
- LGUs can initiate legal actions and defend themselves in court. This power is essential for protecting their interests and enforcing their rights in legal matters, whether in proprietary or governmental capacity.
To Have and Use a Corporate Seal
- LGUs are authorized to adopt and use an official corporate seal, which symbolizes their identity as a legal entity. The corporate seal is affixed to official documents, contracts, and transactions.
To Acquire and Convey Real or Personal Property
- LGUs are empowered to acquire, purchase, hold, lease, or dispose of both real and personal properties. This corporate power allows them to manage public properties, including those necessary for providing public services.
To Enter into Contracts
- LGUs, acting through their local chief executives (e.g., governor, mayor), are authorized to enter into contracts necessary to carry out their governmental and proprietary functions. However, there are statutory and legal restrictions to this power, as LGUs must ensure that their contracts are within their powers, fiscally responsible, and compliant with relevant laws.

III. Limitations on the Corporate Powers of LGUs

While LGUs have broad corporate powers, they are also subject to specific limitations imposed by law, including:

Subject to Legal Authority and Council Approval
- Corporate acts, such as entering into contracts or acquiring property, must generally have the approval of the Sangguniang Panlalawigan, Sangguniang Panlungsod, or Sangguniang Bayan (depending on the level of LGU). The local chief executive (e.g., governor, mayor) is the authorized representative in entering contracts, but the legislative council must approve these actions.
Comprehensive Financial Authority
- The power to acquire property and contract obligations is subject to the availability of appropriations and the fiscal management rules. LGUs must operate within their annual budgets, and their contracts should not result in obligations beyond what their resources can sustain.
Limitations on Borrowing and Indebtedness
- LGUs are permitted to contract loans and borrow funds, but this power is heavily regulated by laws such as Republic Act No. 4860 (Foreign Borrowing Act), Republic Act No. 7180 (Local Borrowing Act), and relevant guidelines from the Department of Finance (DOF) and Bureau of Local Government Finance (BLGF). LGUs are subject to debt ceilings, and borrowing transactions must be approved by the Department of Finance.
Expropriation Power
- As part of its corporate powers, an LGU can exercise eminent domain, or the power to expropriate private property for public use, but only when a public purpose is established. The exercise of this power is also subject to due process and the payment of just compensation to the property owner.

IV. Specific Corporate Acts

1. Contracts and Agreements

LGUs are authorized to enter into contracts necessary for their operation. These include procurement contracts, public-private partnership (PPP) agreements, supply contracts, construction, leases, and joint ventures. However, all contracts must follow the procurement laws, such as Republic Act No. 9184 (Government Procurement Reform Act), and must be approved by the local legislature.

2. Public-Private Partnerships (PPP)

LGUs may enter into joint ventures or partnerships with private entities to undertake projects such as infrastructure, transportation, housing, and economic development. The framework for these agreements is governed by guidelines issued by the national government, such as the Public-Private Partnership Center.

3. Issuance of Bonds

LGUs are empowered to issue bonds, debentures, securities, and other forms of indebtedness to fund projects for economic development. The issuance of such instruments is regulated and requires approval from the Department of Finance to ensure that the LGU has the capacity to repay its debts.

4. Acquisition and Disposal of Property

LGUs can acquire real or personal property for public use or for their operations. They are also authorized to sell, lease, or dispose of surplus properties following proper legislative approval and processes.

5. Franchise and Licensing

LGUs may grant franchises, licenses, or permits in areas under their jurisdiction. These grants are typically for businesses, utilities, and services that operate within the locality, such as transport services, markets, and public utilities.

V. Powers in Relation to Economic Enterprises

In their proprietary capacity, LGUs may operate and manage economic enterprises, which generate income for the local government. Examples include public markets, slaughterhouses, parking lots, and public transport terminals. The income derived from these enterprises augments the resources available to LGUs and funds the delivery of basic services.

VI. Oversight and Regulatory Role of National Government

Although LGUs enjoy local autonomy, their corporate powers remain subject to oversight by the national government. Key regulatory bodies include:

Department of the Interior and Local Government (DILG): Provides general supervision over LGUs, ensuring that their corporate powers are exercised in accordance with the law.
Commission on Audit (COA): Reviews and audits the financial transactions of LGUs to ensure that public funds are spent properly.
Department of Finance (DOF): Regulates borrowing and other financial activities of LGUs, ensuring that they do not become financially insolvent.

VII. Conclusion

The corporate powers of LGUs, as enshrined in the Local Government Code, are fundamental to their ability to operate both as government entities and as corporate entities. These powers enable LGUs to carry out their mandates, provide services to their constituents, and promote economic development within their jurisdictions. However, LGUs must exercise their corporate powers within the limits imposed by law, with the necessary checks and balances provided by the oversight of national government agencies and local legislative bodies.