public corporations

A business organization refers to an entity that is formed by one or more people to produce goods and services aiming at profit making. Examples of business organizations include sole proprietorships, co-operatives, partnerships, companies, parastatals and public corporations. A business organization can also be referred to as a business unit. In this lesson, you will learn about one of these organizations called public corporations.

LEARNING OBJECTIVES

By the end of this topic, you should be able to:

• Explain the forms of public corporations
• Describe features of different forms of public corporations

A public corporation may refer to:

1. Government owned corporation. This is also called a state owned enterprise. This is a business enterprise significantly under the control of the state or government. It is formed by the government through legal means in order to enable the government to participate in commercial activities. It may also take part in government policy for example, a state railroad or railway company may be established to ease transportation and make it accessible. The main reason for establishment of government owned corporations is, to fill the gap of natural monopolies. A natural monopoly refers to monopoly in industries with high costs of infrastructure and other barriers thus limiting the number of entry. This includes railway companies, nuclear facilities and postal services.

2. Public company. This is a company with limited liabilities and its ownership is organized in shares. Its shares are offered for sale over the counter or in a stock exchange market to members of the public who trade freely. Advantages of public companies include; ability to raise funds and capital with ease through the sale of stocks, profit on stock can be shared in dividends or can be left as capital gain to shareholders, the company may be more recognizable and popular than private company because of its many members, and risk is shared by the first shareholders through the sale of shares to the public. One of the major disadvantages of public companies is lack of privacy. It is a requirement by law for accounts of public companies to be audited and the information released to shareholders. This information may be used by competitors against a public company.

Features of a public company

• Separate legal entity. It is a separate legal entity from its members/shareholders.
• Limited liabilities. Shareholders are not personally liable to debts or loses suffered by the company.
• Naming. The use of the prefix LTD is used at the end of public companies.
• There is no maximum for the number of members forming a public company. A minimum of 7 members applies.
• A public company is managed by a board of directors elected by shareholders.

3.  A statutory corporation is one created by the government or state. The specific nature of this type of corporation changes with jurisdiction. Therefore, a statutory corporation can be an ordinary corporation, owned by the government/state, with or without shareholders. It can also be a body with no shareholders, and controlled by the government, as outlined in the creating legislation.

Features of a statutory corporation

• It’s a corporate body. This means that it is a legal entity created by law. Statutory corporations are normally managed by a board of directors usually constituted by the state.
• It is owned by the government/state. The government takes full ownership, and it assists in capital either in part or in full.
• Answers to the legislature. Despite the fact that parliament has no right whatsoever to interfere with the running of these corporations, these corporations are answerable to the parliament.
• Statutory corporations staff are not government servants.
• Financial independence. A statutory corporation is no subject to accounting, budget and audit controls of the government. It enjoys financial autonomy.

What is the difference between public corporations and public limited company?

• Public corporation is formed under an act of parliament while a public limited company is established under the company’s act.
• Public corporations are fully owned by the government while public limited companies are owned by private owners of shares.
• The initial capital of public corporations is provided by the state while the initial capital of public limited companies is got from activities like sale of shares.
• The team of management in public corporations (board of directors) is appointed by the government while the board of directors is elected by shareholders in public limited companies.
• Public corporations are set to offer essential services to members of the public while public limited companies are for making profit.

What is the difference between public corporations and private corporations.

• Public corporations trade freely in the stock exchange while private corporations trade their shares internally. Private corporations do not trade publicly with members of the public.
• Public corporations have many sources of capital while private corporations have limited capital sources. For example, public corporations can generate capital from sources like sale of bonds, which private corporations cannot.

EXAMPLES OF PUBLIC CORPORATIONS TODAY

British Railways. This is the national railway system of the Great Britain. It was created by the Transport Act of 1947. This inaugurated public ownership of the railroads.

Air India. It was founded in 1932 as Tata airlines. It then grew to become the flagship international airline in India. Tata Airlines converted into a public company and renamed to Air-India Limited. Two years later, Air India International Limited was launched.

FEATURES OF PUBLIC CORPORATIONS

• Public corporation is made by law. A special legislative enactment makes a public corporation. This enactment shapes the objectives, style of management, privileges, and powers of a corporation. It also defines the relationship between the corporation and the government.
• Public corporation is a single entity. A public corporation can acquire or sell property, or sue and be sued by its own name.
• Public corporation is closely held by state. The government provides capital for a public corporation. However, individual investors can also make minor contributions.
• Public corporation is free from government control. Public corporations are free from political and parliamentary interference.
• Service motive. Public corporations are aimed at providing services. Profit is a secondary thought.
• Public accountability. Although public corporations enjoy complete autonomy, its accounts are audited and made public.

ADVANTAGES OF PUBLIC CORPORATIONS

• Effective style of organization.
• Public corporations enjoy autonomy.
• The motive of public corporations is service delivery.
• It is easy for public corporations to get funds.
• Public corporations are managed by experts.
• Public corporations enjoy the benefits of huge economies of scale.

LIMITATIONS OF PUBLIC CORPORATIONS

• Public corporations have limited autonomy.
• Political interference.