A government corporation is a business wholly or partly owned by a national government, with ownership determining things like profits and board directors. Governments create these corporations to streamline national business or exert more control over certain industries. Ownership models include wholly owned, mixed ownership, and private. Some government corporations are designed for government involvement, while others result from a rescue or acquisition.
A government corporation is a corporation or business that is wholly or partly owned by a national government. Sometimes the government connection is obvious, but not always. A lot depends on how the company was structured and why. Corporations tend to be classified in one of three ways: they are wholly owned, partially owned, or privately owned. Ownership determines things like how much company profits the government can claim, as well as how much the government says when it comes to things like board directors and house rules. It often happens that companies are created with the idea that they will be owned, in part in whole, by the government; in other cases the government may take over an existing company and convert it into a wholly owned entity, often as a means of rescuing it from crisis or as a way to exert more control over certain industries or industries.
Basic idea
There are a number of reasons why governments want to get involved in the life of the commercial sector. Sometimes government-owned companies are created in order to streamline some national business or provide more or less consistent support to certain sectors. The most direct way for a government to get involved in something is often to create an oversight agency or bureau, but this isn’t always practical – and may not always be beneficial. Allowing businesses to operate in the private sector, but with top-down oversight and influence, often offers the greatest benefits in terms of innovation, profitability and success.
The structure necessarily varies according to the specific company in question, but in most cases the country’s top official will designate at least some of the directors who serve on the companies’ boards of directors. If the national government sets out the purposes, powers and obligations of a government corporation, it will usually also specify the incorporaters.
Ownership models
A government-owned company is typically labeled as wholly owned, mixed ownership, or private, depending largely on how it’s structured. Wholly owned companies will generally produce 100 percent equity for the government. In addition, the company will typically own or control 100 percent of the votes on each company’s board of directors.
Mixed ownership companies are those in which the government owns some of the share capital of the company, but some is also left to other investors. The charter typically requires the president, prime minister or other leader to appoint at least a small fraction of the directors, often related to the percentage of equity owned.
Private companies often represent a special circumstance. In these cases, the government usually does not own any equity, but often does have leverage when it comes to things like board selection and profit dispersion. Companies in this category often perform important government services.
Organizations designed for government involvement
Some of the more easily understood government corporations were designed and conceived with government involvement in mind, usually as a means of providing a service to the public. The Canadian Broadcasting Corporation, for example, is one of the largest and most well-known corporations owned by the Canadian government. The company acts as an independent corporation insofar as it has the freedom to decide what programming to offer and which staff to hire, but receives the majority of its funding from the national Treasury.
The United States also has many examples. The United States Postal Service (USPS), the Environmental Protection Agency (EPA), and the Federal Deposit Insurance Corporation (FDIC), for example, are all government corporations in one way or another. USPS and FDIC are wholly owned by the government, but also have the highest level of political independence. The EPA is a similar corporation, but it doesn’t get the same political independence as the other two.
Companies resulting from a rescue or acquisition
Sometimes companies that started out as private are taken over by the government, which can turn them into de facto government companies even if they didn’t start that way. The US bailouts after the 2008 economic recession are a good example. Government funding action meant that companies including Citigroup, American International Group, General Motors and Chrysler were subsidized to resist bankruptcy. The US government viewed these companies as vital to the national economy and provided financing in exchange for a stake in their future.
Not all conversions are so friendly. There have also been situations where governments take over private sector industries, usually in order to control the information they are spreading or to exploit their efficiency for larger national purposes. In China, for example, most private companies are wholly owned by the Chinese national government. This gives this government enormous control over the market.
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