What’s it: A public corporation has the following two meanings:
- A state-owned entity, which is wholly or largely owned by the government – perhaps national or local governments – to provide certain public services. It is sometimes called a national industry because one company usually acts as a monopolist in a particular industry. They typically operate in strategic sectors such as electricity and railways. Also known as state-owned enterprises (SOEs) or public purpose corporations.
- A publicly-held company whose shares are sold and traded by the public through the stock exchange. They operate in the various economic sector, from the primary sector to the quaternary sector. You may be interested in buying their shares when diversifying your asset class portfolio for capital gains or dividends. Also referred to as a listed company.
Well, in this article, I will focus on the first definition.
A quasi-public purpose corporation or quasi-public corporation is a variation of a public corporation. They aim to serve and benefit the public.
However, instead of being owned and operated by the government, quasi-public companies are privately owned and operated. They benefit from receiving some government funds and are mandated by the government to provide public services. So, rather than creating value and maximizing wealth for shareholders, they should prioritize that mandate.
Public corporation features
Incorporated. The company is registered as an official legal entity such as a private limited liability company and a public limited liability company.
Purpose. Public corporations are established to help provide services to the public. Therefore, they have a service motive, and profit is only a secondary consideration. For example, state-owned airlines operate to facilitate the transportation of residents in remote areas.
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Operation area. Public corporations are in the public sector and typically operate in strategic and highly regulated industries such as power, health, and public transportation. Or they manage a nationalized industry or business.
Management. Public purpose corporations are set up with flexibility like the private sector and authority like the government sector. Although owned by the government, the company’s management makes day-to-day decisions. But, major policy decisions are taken by the government.
Advantages of a public corporation
Affordability. The company provides essential public services to citizens at an affordable price. The company aims to serve the public, not solely for the sake of profit.
Operation continuity. Public corporations continue to operate with government support even if they are at a loss. The government will maintain it because it provides considerable social benefits to the public.
Government support. The company is not too bothered about raising funds because it has strong funding support from the government. Likewise, the company provides the privilege to operate, so it does not face competitive pressures.
Disadvantages of a public corporation
Inefficiency. Not facing competitive pressures, there is no reason for the company to operate more efficiently. In addition, companies also do not strictly pursue profit targets, making them less concerned about efficiency. That contrasts with private companies, where they have to operate more efficiently to maximize profits.
Intervention. The government has a significant influence on business decisions. And political reasons also complicate operations and reduce independence in conducting business. For example, some politicians may use them to pursue popularity in a particular area.
Waste of money. Because the pressure to be more efficient is low, the company is likely to consume more costs. As a result, it could cost a large government budget to subsidize them. In addition, corrupt practices within the company also increase costs.