Describe the public corporations (state corporations) form of business ownership

These are organizations formed by and/or controlled by the government (the government has a
controlling interest). This means that the government owns more than 50% shares in the
corporation. Where the government has full ownership, the organization is known as a
parastatal
- Public corporations are formed to perform certain/specific functions on behalf of the
government.
- They are formed to provide essential services that are generally in the public interest, and
that may require heavy initial capital investment which few private investors can afford
- They are formed by the act of parliament.
Examples
- Kenya Railways corporation- provides railway transport
- Telkom Kenya-provides telecommunication services
- Postal corporation of Kenya
- Industrial and commercial Development corporation (ICDC)- financial and management
services
- Mumias and Chemelil sugar companies.
- Kenya air ways- provide air transport services. etc

Characteristics/features of public corporations
- They are formed by the government under the existing laws i.e formed by an act of
parliament eg education act
- Initial capital is provided by the government
- They are jointly owned by the government and members of public/private investors
- They are set up to perform certain specific functions on behalf of the government
- They are managed by a board of directors appointed by the government or appointed by
the government and the joint owners
- They have an entity of their own and can own property, enter contracts, sue and be sued
- They have limited liability
- Some operate without a profit motive while others have a profit motive

Formation
-Some are formed by an act of parliament while others are formed under the existing laws.
-When formed by an act of parliament, the Act defines its status obligations and areas of
operation. The Act outlines the following;
- Proposed name of the corporation
- Aims and objectives
- Goods or services to be produced and provided
- Location(Area of operation)
- The appointment of top executives
- The powers of the Board of directors
- The ministry under which it will operate

Management
-The public corporations are managed by a board of directors appointed by the president or the
relevant minister
-The chairman and the board of directors are responsible for the implementation of the aims
and objectives of the corporations.
-The chairman of the board of directors reports to the government (president) through the
relevant minister.
-The managing director who is usually the secretary of the board of directors in the chief
executive officer of the corporation

Sources of capital
-The initial capital is usually provided by the government as a vote of expenditure for the
ministry concerned
-Those corporations jointly owned by the government and the public raise capital through the
sale of shares
-financial institutions in form of loans
-Retained profits/profits ploughed back.
-Hire purchase
Advantages of public corporations
- Initial capital is readily available because it is provided by the government
- Can afford to provide goods and services at low prices which would otherwise be
expensive if they were left to the private sector.
- Most of them produce goods and services in large quantities thereby reaping the
benefits of large scale production
- Some are monopolies. They hence enjoy the benefits of being a monopoly e.g. they do
not have to incur costs advertising since there is no competition
- They can be bailed out/assisted by the government when in financial problems
- They have limited liability
- Money for research and development can be made readily available by the government
- Through corporations the government is able to remove foreign domination in the
country
- They can afford to hire qualified personnel.

Disadvantages of public corporations
- They are managed by political appointees who may not have the necessary managerial
know how.
- When they make losses, they are assisted by the government and this could lead to
higher taxation of individuals
- Lack of competition due to monopoly leads to inefficiency and insensitivity to customers
feelings.
- Political interference may hamper efficiency in the achievement of set goals and
objectives.
- Decision-making is slow and difficult because the organizations are large.
- They may lack close supervision because of their large sizes.
- There is embezzlement of large sums of money leading to loss of public funds
- The government is forced to provide goods and services to its citizens in all parts of the
country where at times its uneconomical to provide them because the costs of providing
them may surpass the returns
- Public funds are wasted by keeping poorly managed public corporations.
- Diseconomies of scale apply in these business units because they are usually very large
scale organizations e.g. decision making may take long.

Dissolution of public corporations
They can only be dissolved by the government due to:
1. Persistent loss making
2. Bankruptcy- where the corporation cannot pay its debts
3. Change in the act of parliament that formed the corporation
4. Privatization
5. Mismanagement, resulting in poor management of the corporation

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Titany answered the question on November 10, 2021 at 08:41