Classwork Series and Exercises {Commerce – SS1}: Public Corporation

Commerce SS1 Second Term 

Week 7: Public Corporation

Contents:

1. Meaning of public corporation
2. Examples of public corporation
3. Features or characteristics of public corporation
4. Advantages and disadvantages of public corporation
5. Reasons for the Establishment of public corporation
6. Types and formation of public enterprises
7. Specific problems associated with public corporations
8. Sources of finance to public corporation

Definition of Public Corporation 

Public corporation means an entity that is created by the state to carry out public missions and services. A public corporation is a large scale business organization set up, owned and financed by the government of a country with the aim of providing services to the members of the public. In order to carry out these public missions and services, a public corporation participates in activities or provides services that are also provided by private enterprise. A public corporation is also known as a public enterprise and a statutory corporation. The public corporation is managed and controlled by the board of directors appointed by the government.

Features/ characteristics of public corporation

1. Establishment: Public corporation is established by decree or by act of parliament.
2. Monopolistic in nature: Some public corporations are conferred with monopoly powers by an act of parliament or decree.
3. Not profit oriented: Public corporations are not set up to make profit but to provide essential goods and services to the people.
4. Accountability: The management of public corporation (board of directors) is accountable to the government that set up the corporation.
5. High capital requirement: A public corporation requires large capital to set up which cannot be provided by private individuals.
6. Government and tax payers bear the risks: The risk of the business is borne by the government and the tax payers because they are responsible for providing the capital for financing the project.
7. Legal entity: It is a legal entity as it can sue and be sued in its own right.
8. Employees are public servants: The workers in the public corporation are public servants and are treated as such.
9. Not profit oriented: Public corporations are not set up to make profit but to make goods and service available for the people.
10. Objective: The primary objective of public corporation is to ensure the provision of essential services to the member of the public.

Examples of public corporation are:

1. Federal Radio Corporation of Nigeria (F.R.C.N)
2. Nigeria National Petroleum Corporation (N.N.P.C)
3. Nigerian Telecommunication Limited (NITEL)
4. Nigeria Ports Authority (N.P.A)
5. Power Holding Company Of Nigeria (P.H.C.N)

Advantages of Public corporation

The following points below are the reason/ advantages of public corporation. Some of which are:

1. There will be availability of large and sufficient capital to work with.
2. They base their decisions on the full costs and benefits involved.
3. They can be used to influence economic activity. To boost the country’s output, public corporations can be directly encouraged to increase their output.
4. In cases where it is practical to have only one firm in the industry, such as rail infrastructure, a public corporation would not abuse its market power.
5. Ownership of a whole industry by the government makes planning and coordination easier. For instance, if the state runs the train system, it can ensure that train timetables are coordinated.
6. It is important to ensure that basic industries, so much as electricity and transport survive, charge low prices and produce good quality as other domestic industries depend on them.
7. It serves as a creation of higher standard of living for the people.
8. It also caters for the interest of the workers.
9. There will be continuity; there is perpetual existence.
10. Avoidance of exploitation of consumers.

Disadvantages of Public Corporation

The following below are the disadvantages of Public corporation.

1. It requires a large capital
2. There is inefficiency in the operation
3. There is usually corruption and mismanagement of the public funds
4. It is not profitable
5. There is lack of initiative
6. There is lack of privacy
7. There is usually wastage
8. There is danger of monopoly
9. Decision making is usually slow
10. Government regular interference.

Reasons for the Establishment of Public corporation

Public Corporation is established for the following reasons:

1. Employment opportunities: This is one of the major reasons for the establishment of public corporation, the provision of business by the government create avenue for the unemployed to get a job to do.
2. For strategic and security reasons: The Government establish public corporation for the purpose of controlling some certain key industries like the airports, seaports, the oil industry for strategic reasons.
3. To provide infrastructural facilities: The governments also establish certain enterprises to provide infrastructural facilities like roads. railways etc
4. To prevent Monopolistic: The Government established public corporation also to prevent private sectors from exploiting the general public.
5. To promote Economic Development: Government invests in enterprises like banks, insurance etc in order to have firm control over the economy and to regulate it.
6. To ensure even distribution of income: Government engages in some business enterprises in order to ensure fair and even distribution of income.
7. To prevent foreign dominance of the economy: Government ventures into business in order to prevent or reduce foreign control of the economy by foreign investors.
8. High capital requirement: Public corporation requires a lot of money to start which cannot be provided by private sectors or individual.

Types and formation of public enterprises

1. Public Corporation: public corporations are organizations controlled by board of directors appointed by the government while the minister in charge is the overall controller.
2. Quasi Government departments: They perform some commercial functions. They are responsible to the government through the minister, e.g. Hospitals.
3. State government owned enterprise: These are enterprises established and controlled by the state government. State government owned enterprise is established by edicts. Example: Lagos State Transport Corporation.
4. Local Enterprises: They are managed by the local government; they are mostly facilitated in the rural area to ensure development in such areas.

Problems associated with Public Corporation

The following are the problems common to public corporation; these are:

1. High level of embezzlement
2. There is usually political instability
3. Favoritism in appointments
4. Political victimization
5. Negative attitude of the workers towards their job is so alarming
6. There is usually a frequent government interference

Sources of finance to public corporations

The government can get finance from the following sources

1. Internally generated revenue: This is known as the profit made from the already existing businesses, they get finance from revenue generated internally.
2. Grant from foreign countries: Countries like United State of America can help in granting loans or financial aids to set up public corporation.
3. Grant from international financial institution: Public corporation can also get their finance from some international financial institutions like International Monetary Fund (I.M.F)
4. Loans and Overdraft: Public corporation can also obtain loans and overdrafts from commercial or development banks.

Test and Exercise

1. A public corporation objective is to (a) make profit (b) exploit consumers (c) to render essential service to the public (d) to get more customers.
2. The public corporation is managed and controlled by the (a) individual (b) the workers (c) the tax payers (d) government.
3. The following are examples of public corporation except (a) Power Holding Company Of Nigeria (P.H.C.N) (b) Guarantee Trust Bank (GTB) (c) Nigeria Ports Authority (N.P.A) (c) Nigerian Telecommunication Limited (NITEL) (d)Nigeria Railway Corporation (N.R.C).
4. All the following are advantages of public corporation except (a) there is continuity (b) danger of monopoly (c) availability of large capital (d) creation of higher standard.
5. The employees in public corporation are regarded as (a) public servants (b) private servants (c) company workers (d) none of the above.
6. State government enterprises are established by (a) decree (b) act of parliament (c) edicts (d) law.
7. The public corporation can get finance through the following means except (a) loans and overdraft (b) personal savings (c) internally generated revenue (d) grant from international financial institutions.
8. One of the problems associated with the public corporation is (a) location of the business (b) problem of who to employ (c) embezzlement of funds (d) all of the above.
9. The type of public enterprise that performs commercial function is (a) local enterprises (b) state government owned enterprises (d) quasi government department.
10. M.F stands for (a) International Money for Friends (b) Institution Money Fund (c) International Monetary Fund (d) Inconsistent in Monetary Funds.

 For more on class notes, visit: http://passnownow.com/classwork-support/