Conflict of Interest Rules for Municipal Officials Who Own Businesses (Philippines)

Philippine legal overview for local elective and appointive officials. This is general information and not legal advice.

I. Core Concepts and Legal Sources

Conflict of interest arises when a public official’s private interests could improperly influence—or appear to influence—the performance of public duties. For municipal officials, the governing framework is primarily:

Local Government Code of 1991 (LGC, R.A. 7160) – special rules for local officials on prohibited business/pecuniary interests, practice of profession, disclosure, and conduct.
Anti-Graft and Corrupt Practices Act (R.A. 3019) – criminalizes corrupt practices including having financial interests in transactions where the official intervenes in an official capacity.
Code of Conduct and Ethical Standards for Public Officials and Employees (R.A. 6713) – sets standards, requires SALN and business interest disclosures, and mandates divestment in cases of conflict.
Government Procurement Reform Act (R.A. 9184) and IRR – disqualifications and disclosure-of-relations rules for public procurement.
Civil Service rules – administrative liability (dishonesty, grave misconduct, conduct prejudicial to the service), and nepotism limitations.
Special sectoral laws (e.g., for public utilities, gaming/cockpits, quarrying, environment, health, education) – may impose stricter incompatibilities.

II. Who Is Covered?

Elective municipal officials (mayor, vice-mayor, sanggunian members).
Appointive officials and employees of the municipal government and component offices.
Barangay officials are also “public officials” under R.A. 6713 and R.A. 3019; the LGC provides specific relaxations for practice of profession but not for corrupt practices.
Spouses and relatives of officials matter in several rules (see Sections IV and V).

III. Prohibited Business and Pecuniary Interests (LGC)

A. General Prohibition

Local officials may not, directly or indirectly, have a financial or pecuniary interest in any contract or business in which the municipality is an interested party, or in any business, franchise, or privilege granted by the municipal government, or in any enterprise regulated, supervised, or licensed by it.

What this captures:

Owning shares or acting as beneficial owner in a company contracting with the municipality (e.g., supplying materials, leasing property to LGU).
Holding interests in a business needing municipal permits or regulatory approvals (e.g., resorts, restaurants, terminals, markets) when the official participates in regulatory action affecting that business.
Having hidden/indirect interests via nominees or dummies.

B. Specific Illustrative Prohibitions (typical under the LGC)

Entering into or approving contracts with the LGU where the official has a financial interest.
Granting, renewing, or influencing permits, licenses, or franchises for a business in which the official (or covered relatives) has an interest.
Appearing as counsel or agent before municipal offices in matters adverse to or involving the municipality.

Key idea: Even if the business operates outside the municipality, the prohibition can still bite if the contract/transaction involves the municipal government or its instrumentalities, or if municipal regulatory power is in play.

IV. Anti-Graft (R.A. 3019) Touchpoints

R.A. 3019 criminalizes, among others:

Having financial interest in any business, contract, or transaction in connection with which the official intervenes or takes part in an official capacity, or in which he is prohibited by law from having any interest.
Directly or indirectly requesting/receiving benefits in connection with official duties.
Knowingly approving transactions manifestly and grossly disadvantageous to the government.
Transactions involving relatives: certain acts are aggravated when the private party is related to the public officer within specified degrees (commonly up to the third civil degree in procurement-related disqualifications and anti-graft contexts).

Penalties: imprisonment, perpetual disqualification from public office, and possible confiscation/forfeiture of ill-gotten benefits—separate from administrative penalties.

V. Procurement-Specific Conflicts (R.A. 9184)

Bidder disqualification for relations: A bidder is disqualified if related within the third civil degree of consanguinity or affinity to any of the following in the procuring entity: Head of the Procuring Entity (HOPE), BAC members, BAC Secretariat, TWG, PMO/end-user.
Conflict of interest among bidders (e.g., controlling interests, common ownership undermining competition) triggers disqualification.
Officials must inhibit from procurement proceedings where they or their relatives have interests; bidders must disclose relations in bid forms.

If a municipal official (or spouse/covered relative) owns a firm that wants to supply the municipality, the firm is typically barred from bidding, and the official must not participate in the procurement in any capacity.

VI. Ethical Standards, Disclosure, and Divestment (R.A. 6713)

A. SALN & Business Interest Disclosure

Officials must file Statements of Assets, Liabilities, and Net Worth (SALN) and disclose business and financial interests annually and upon entry/exit from service.

B. Conflict Avoidance and Divestment

A public official shall avoid conflicts of interest at all times.
When a conflict arises, the official must:
- Resign from any private office or employment in the business within 30 days from assumption of public office; and/or
- Divest shareholdings or interests within 60 days from assumption (or as required when the conflict later arises).
Inhibition: Even where divestment is not legally mandated (e.g., passive minority shareholding with no control), the official must not participate in any official action affecting the business.

Penalties under R.A. 6713: administrative sanctions (suspension, dismissal) and/or criminal penalties (fine/imprisonment), plus civil liabilities.

VII. Practice of Profession; Holding Second Positions (LGC & CSC)

Certain local officials cannot hold any other government office or employment (with narrow exceptions).
Practice of profession: LGC places limits on elected local officials; some allowances exist (especially for barangay officials) but never to the extent of causing conflicts or using public office for private gain.
Nepotism: Appointing relatives to municipal posts within prohibited degrees violates civil service rules, and intertwines with conflict-of-interest risk when those relatives manage or regulate the official’s business.

VIII. What Counts as a “Financial or Pecuniary Interest”?

Equity ownership (even minority), beneficial ownership, partnership interest, board directorship, officership, creditor interest with control rights, and profit-sharing arrangements.
Interests held through spouses, minor children, or controlled corporations; interests held by relatives in certain contexts (LGC and procurement rules) may trigger disqualification or require the official’s inhibition.
“Indirect” interests through nominees or trusts will not shield the official.

IX. Typical Risk Scenarios for Municipal Officials Owning Businesses

Permit/License Risk: Mayor or sanggunian member owns a restaurant needing mayor’s permit and sanitary/fire clearances. The official must not participate in the issuance, renewal, or enforcement actions affecting that business; better, divest or operate outside jurisdiction.
Procurement Risk: Official’s company bids to supply goods to the municipality. This is prohibited/disqualifying under procurement rules; the official must inhibit and the company should not bid.
Regulatory/Franchise Risk: Ownership in a quarrying, transport terminal, cockpit, or public market concession – typically barred because these are licensed/franchised or supervised by the municipality.
Leases and Public-Private Deals: Leasing LGU property to an official’s business or entering a PPP/joint venture with it is generally prohibited; any attempt risks anti-graft liability.
Sanggunian Action: Voting on ordinances or resolutions (e.g., zoning changes, tax incentives) benefiting the official’s own business is a conflict; the official must disclose and abstain at a minimum—often the safer course is divestment.

X. Compliance Playbook (Practical Steps)

Inventory Interests. List all businesses (sole proprietorships, partnerships, corporations), officerships, board seats, and beneficial interests of the official, spouse, and minor children.
Map Regulatory Touchpoints. Identify where municipal permits, licenses, franchises, inspections, procurement, or enforcement could affect the business.
Decide: Relocate, Restructure, or Divest.
- Operate outside the municipality to avoid LGU regulatory control; still avoid municipal contracts.
- Resign as officer/manager and convert equity to purely passive; ensure no control and adopt blind trust-style arrangements where appropriate.
- Divest interests that create unavoidable conflicts (observe 30/60-day timelines under R.A. 6713 when applicable).
Mandatory Disclosures.
- SALN and business interest disclosures (initial, annual, exit).
- Meeting disclosures: In any sanggunian or committee deliberation, disclose the conflict and abstain from participation/voting.
Inhibition Protocols. Issue written inhibitions from matters affecting the business; delegate to the vice-mayor/acting official or next-in-rank as per internal rules.
Procurement Controls.
- Prohibit your business and related-party bidders from participating in municipal bids.
- Require suppliers to submit Disclosure of Relations; BAC to enforce disqualifications.
Gifts/Hospitality Policy. Adopt a zero or de minimis gift policy, vendor rotation, and COI registers.
Documentation. Keep copies of divestment deeds, resignations from companies, inhibition orders, and disclosures; update GIS (corporate) and municipal transparency portals where applicable.
Training & Audits. Annual COI training for officials and BAC; COA/audit readiness checks.

XI. Sanctions and Exposure

Criminal (R.A. 3019): imprisonment, perpetual disqualification, forfeiture.
Administrative (R.A. 6713/Civil Service): reprimand, suspension, dismissal; forfeiture of benefits; perpetual disqualification.
Local Government Consequences: nullity of contracts; return of undue benefits; COA disallowances; surcharge/interest; filing with the Ombudsman.
Corporate Law Exposure: directors’/officers’ liability if the private company aided or benefited from the unlawful transaction.

XII. FAQs

1) May a municipal official own a business at all? Yes—but not one that contracts with the municipality or is regulated/licensed by the municipality if the official participates or may influence related official acts. Even passive ownership can be problematic; divestment or operating outside jurisdiction is often necessary.

2) Can my spouse’s company bid on municipal projects? No. Procurement rules disqualify bidders related within prohibited degrees to key municipal procurement officials; anti-graft and LGC prohibitions also apply.

3) If I am only a minority shareholder with no role, is that safe? Passive stakes reduce risk but do not cure anti-graft exposure if you intervene officially. For recurring matters affecting the business, consider divestment or a blind structure, plus strict inhibition.

4) Can I sign my own business’s permits as mayor? Absolutely not. You must inhibit, and the application should be acted upon by the authorized alternate. The safer path is to avoid operating such a business in your municipality or divest.

5) What if a conflict arose after I assumed office? Under R.A. 6713, resign from positions in the business within 30 days, and/or divest within 60 days of the conflict arising; file updated disclosures and issue inhibition orders.

XIII. Model Clauses and Tools (for in-house use)

Inhibition Order: “Pursuant to R.A. 6713 and the LGC, I hereby inhibit from all actions relating to [Business], including permits, inspections, enforcement, or procurement; all such matters are delegated to [Acting Official] effective immediately.”
Divestment Undertaking: “I hereby divest all beneficial and voting interests in [Company], effective [date], and resign as [position]. I will not receive any preferential information or benefits arising from municipal actions.”
Sanggunian Disclosure & Abstention: Insert into minutes: “Member disclosed a potential conflict under R.A. 6713/LGC concerning [agenda item] and abstained from deliberation and voting.”

XIV. Quick Self-Audit Checklist

SALN and business interest disclosures are current.
Written inhibition in place for any municipal matter affecting my business.
No municipal contracts with any company in which I (or spouse/minor children) hold interests.
My company (or relatives’ firms within prohibited degrees) does not bid in municipal procurement.
If conflict is unavoidable: resigned from private posts (≤30 days) and/or divested (≤60 days).
Documentation retained for COA/Ombudsman/CSC review.
Training completed for BAC, permits office, and compliance staff.

XV. Bottom Line

Owning a business is not per se forbidden, but municipal officials bear strict duties to avoid, disclose, inhibit, and where necessary divest to prevent conflicts. The safest posture is to eliminate any financial interest in businesses that transact with or are regulated by the municipality, rigorously apply procurement disqualifications, and maintain paper trails of all disclosures and inhibitions. The costs of non-compliance—criminal liability, administrative sanctions, and contract nullity—far outweigh any private gain.