Public Corporation(Final)

7/28/2019 Public Corporation(Final)

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5/30/2013

Public Sector Management Assignment

PUBLIC CORPORATION

SUBMITTED BY : SAFIA AN

CLASS ROLL NO: 90

EXAM SEAT NO: P1157096

SUBMITTED TO: SIR MASOOD


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PUBLIC CORPORATION 30/May/2013

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PUBLIC CORPORATION

INTRODUCTION TO BUSINESS TYPES:

An entity formed for the purpose of carrying on commercial enterprise. Such

an organization is predicated on systems of law governing contract and

exchange, property rights, and incorporation Business enterprises take oneof three forms: individual proprietorships, partnerships, or limited-liability

companies (or corporations). In the first form, a single person holds the

entire operation as his personal property, usually managing it on a day-to-

day basis. Most businesses are of this type. The second form, the

partnership, may have from 2 to 50 or more members, as in the case of

large law and accounting firms, brokerage houses, and advertising agencies.


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This form of business is owned by the partners themselves; they may

receive varying shares of the profits depending on their investment or

contribution. Whenever a member leaves or a new member is added, the

firm must be reconstituted as a new partnership. The third form, the limited-

liability company, or corporation, denotes incorporated groups of personsthat is, a number of persons considered as a legal entity (or fictive person)

with property, powers, and liabilities separate from those of its members.

CLASSIFICATIONS OF COMPANIES:

After all this, we arrive at the following possible combinations of different

companies with the proprietary limited company being the most prevalent.

Proprietary companies

(no more than 50 non-employee

shareholders)

1 Limited by shares 98.2%

3 Unlimited with share capital

Public companies

(all non-proprietary companies: see

definition of public company)

1 Limited by shares 0.7%

2 Limited by guarantee

3 Unlimited with share capital

4 No liability company (mining

only) 0.09%

THE PUBLIC SECTOR COMPRISES:

Central Government Parliament Government Departments education, defence, etc. Devolved Governments Other public funds - Foreign exchange reserves

Quasi Autonomous Non-Governmental Organisations nowreferred to as Non Departmental Public Bodies, e.g. EqualOpportunities Commission, Advertising Standards

Authority, Competition Commission, English Heritage


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Local Government Public Corporations

PUBLIC CORPORATION:INTRODUCTION:

"Publiccorporation" means anentitythat is created by thestateto carry out

public missions and services. Inorderto carry out these public missions and

services, a publiccorporationparticipates in activities or provides services that are

also provided by privateenterprise. A publiccorporationis granted increased

operating flexibility inorderto best ensure its success, while retaining principles of

public accountability and fundamental public policy. Theboardofdirectorsof a

publiccorporationis appointed by the Governor and confirmed by the Senate but

is otherwise delegated theauthorityto set policy andmanagethe operations ofthe publiccorporation.

DEFINITION :

Legally public corporation can be define as:

A corporation created to perform a governmental function or to operate under

government control

OR

Acompanywhosesharesarepublicly tradedand are usuallyheldby a large

number (hundreds or thousands) ofshareholders.

OR

The Public Sector isthat part of business activity that is organised and controlled

by the government or its agencies on behalf of the nation as a whole

example such as : municipal water company or hospital.

EXPLANATION:

A public corporation is a corporate body created by the special Act of the

parliament. Such Act defines the power, duties, privileges and pattern of

management of these organisations. Such an organisation is a statutory

body to serve the general public. A public corporation is clothed with the
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power of the government, but possessed with flexibility and initiative of

private enterprises. A public corporation enjoys complete autonomy in

management.

TYPES OF PUBLIC CORPORATION:

A public company protects its investors from liability. Unlike sole proprietorships

and standard partnerships, a public company's shareholders are not liable or have

limited liabilities for the debts the company holds. This means their assets are

protected should the company fail. There are three common types of public

companies: corporations, limited liability companies, or LLC, and S corporations.

Deciding which structure best suits your company is based upon its business plan

and business model.

There are three types pf public corporation .

1. Corporation.2. Limited liability corporation.3. S Corporation.

I. Corporation:Secretaries of state certify a business as a corporation once it

submits articles of incorporation. Once approved, the state issues acertificate of incorporation enabling the company to issue shares.The U.S. Internal Revenue Service (IRS) allows corporations to

accept money, property, or other assets of value for corporatestock. Business seeking large amounts of capital and limits on

personal liability may wish to form a corporation. Corporateregulatory laws govern the management structure of a corporation.

II. Limited Liability Corporation:The U.S. Internal Revenue Service recognizes limited liability

companies (LLCs) as partnerships. However, some states havecreated statutes that allow the formation of an LLC business

structure. Business partners in an LLC are referred to as members.LLC business structures have become popular in many states

because there are no limits to the number of partners or the type ofpartnerships a LLC forms. For example, an LLC member can be an

individual or another business. In addition, partners in an LLC have


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limited personal liability for the debts and the actions of thebusiness.

III. S Corporations:

S corporations (S Corp) are public companies that elect to pass the

corporations taxable financial gains, losses, deductions and creditsto their shareholders. Shareholders in an S corporation then reportthe taxable items on their personal tax returns. Business ownersform S corporations to benefit from a corporations liabilityprotection on personal assets and avoid the tax burdens inherent ina traditional corporation. The IRS recognizes S corporations if thecorporation meets certain requirements, including: functioning as adomestic corporation, having only one class of stock with no morethan 100 stockholders, and having only allowable shareholders such

as individual investors and estates. The IRS will not acknowledgean S Corp with corporations or non-domestic shareholders. All

businesses seeking to attain the designation of an S corporationmust submit Form 2553 with the signatures and information ofeach shareholder attached.

FEATURES AND CHARACTERISTICS OF PUBLICCORPORATION:

The followings are some of the essential characteristics of public corporation:

i. It is a corporate body created by the special act in the state or central

legislature. The power and duties of these corporations are defined by this

Act.

ii. It enjoys the status of a legal entity and as such it can enter into contract

in its own name.

iii. It is completely owned by the government and as such no private

individuals are entitled to purchase shares of these organisations.

iv. A public corporation is managed by a board of directors. The members of

the board are from all walks of industry and commerce. The chairmen of

these corporations are appointed by the government.


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v. The entire capital is financed by the government. It was set up with a

capital of its own and is entitled to borrow, use and re-use revenue from the

sale of goods.

vi. A public corporation is primarily meant to render service and makingprofit is its secondary considerations.

vii. The employees of corporation are subject to service conditions laid down

by the corporation. Civil service rules for the government do not apply to the

employees of the corporation.

ADVANTAGES AND DISADVANTAGES OF

PUBLIC CORPORATION:Following are the advantages and dis advantages of public corporation.

ADVANTAGES:

A public corporation enjoys a substantial advantage over other forms of

public enterprises. The following are some of the advantages of public

corporations:

i. INDEPENDENT DECISIONS:

A public corporation is able to manage its affairs with

independence, initiative because it is an autonomous set up.

ii. AUTONOMOUS NATURE:

It is relatively free to adapt to changing circumstances because of

its autonomy nature.

iii. CONSISTENT IDENTITY:

It maintains continuous existence in spite of changes in the

government.


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iv. LEAST GOVERNMENT INTERFERENCE:

It leads to high morale among the executives and other employees

because of least government interference.

v. COMPETENT:

It can utilize the service of competent persons because it has its

own cadres of employees.

vi. BOARD OF DIRECTORS:

The board of directors consists of experts from business, labour and

consumers. So a board of director can give better advice for the

operation of the corporation.

vii. SERVICE ORIENTED:

Since public corporations are accountable to the parliament, they

are intended to render maximum service to the public instead of

maximum profit.

DISADVANTAGES:

Recently, written the advantages of taking a company public but whatsoever has

an advantage has a corresponding disadvantage. Though we might call them

disadvantages, I prefer to call them challenges and forming a public corporation is

the same as taking a company public.

Below are six reasons why most entrepreneurs shy away from forming a public

corporation or taking their company public.


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1. Difficulty of formation:

It is comparatively more difficult to set up a public company. A prospectus had to

be issued and filed. Allotment of shares has to be done in accordance with legal

guidelines. A certificate of commencement of business is required and business

cannot be started immediately after incorporation of the company.

2. Delay in decisions:

There are several directors and managers in a public company. Decisions are taken

in meetings of the Board of directors with the consultation of concerned officials.

The decisions may often get delayed.

3. Lack of secrecy:

A public company has to file several documents with the Registrar of Companies.

Its annual accounts are published and its records are open for inspection to public.

Therefore, business secrets cannot be guarded effectively.

4. Legal formalities:

A public company is required to observe several legal formalities. There is excessive

Government control over public companies. Flexibility of operations is reduced.

5. Lack of motivation:

There is divorce between ownership and management in a public company. Paid

officials do not have the incentive to work hard and increase efficiency of opera-

tions.

It may not be possible to maintain personal contacts with customers and

employees. There can be a clash of interests among shareholders, debenture holder

and managers of the company.


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6. Unhealthy speculation:

Shares and debentures of public companies are bought and sold daily on stock

exchanges. Clever and dishonest people may indulge in reckless speculation in

these securities for private gain. There is lack of protection to minority

shareholders.

MANAGING PUBLIC CORPORATIONS:Public corporations may have many shareholders. The corporation is managed bythe major shareholder. This is always either a country or an enterprise. Investmentfunds may become large shareholders in corporations but they never manage them.

Managing the corporation means that the corporation will appear on the list ofpublic corporations you have. With 51% of the shares, undoubtedly you will be thelargest shareholder and manage the corporation. However, if 20 investment fundstogether hold 85% of the shares, you may be the major shareholder with only 5%

of the shares and manage it.

If another user succeeds in purchasing more shares and becomes a largershareholder, the corporation will disappear from your list and surface on the list ofthe new major shareholder.


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THE CORPORATE CONTROL FRAMEWORK:The controls on public corporations operate at a number of levels that is:

o STRATEGIC OBJECTIVES:Strategic objectives are agreed with each individual corporationand provide the framework within which the financial controls

and the bodys control procedures are set. Corporations

corporate plans are discussed with sponsor departments.

oFINANCIAL TARGETS AND PERFORMANCEAIMS:

Financial targets should be set and reviewed regularly. Theyvary in form, according to the circumstances of the body. The

financial targets should be backed up by performance metrics,again to be reviewed on a regular basis. The nature of the

metrics will depend on the nature of the business, but couldinclude costs and standards of service.

o INVESTMENT APPRAISAL AND PRICINGPRINCIPLES:

Public corporations are required to include a suitable rate ofreturn in their corporate plan. This requirement is intended to

ensure that resources are used effectively, that consumers

experience appropriate prices, and that markets are notdistorted. The required rate will vary between corporations and

is set individually by the sponsoring department with, whereappropriate, the agreement of the Treasury.

o MONITORING:Monitoring plays an important role in controlling public

corporations performance in the interests of the taxpayer and

the consumer. Sponsor Ministers, departments and the

Shareholder Executive, where appropriate, will monitor bodies


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performance on a regular basis against all aspects of the controls

described.

CONCLUSION:

Taking a privately held corporation public can be expensive. If the transition

isn't successful, the company may lose money. Publicly held companies are

subject to the regulations imposed by the Securities Exchange Act of 1934,

which requires them to regularly report their revenue to stockholders.

Privately held corporations are exempt from this requirement. While having

the best employees is every company's goal, publicly held corporations are

typically better known and attract better personnel.

Documents

Public Corporation(Final)