Public Corporation – Meaning, Features & Advantages

You’ve probably heard of some big public corporations like Apple, Coca-Cola, or McDonald’s. But do you know what a public corporation actually is and the key features that set it apart from other business structures? In this article, we’ll break down what public corporations are all about in simple terms. We’ll look at how they are defined, the unique aspects that characterize them, and the major upsides they offer as a corporate structure choice for large companies.

Whether you’re an entrepreneur exploring options or an investor seeking to better understand public entities, you’ll walk away with a clear understanding of public corporations and how they operate.

Definition of Public Corporation

A public corporation, also known as a state-owned enterprises (SOEs) or public purpose corporations, is a business owned by shareholders who buy and sell stock in the corporation. Instead of being privately held, public corporations sell shares of ownership to the general public and trade on a public stock exchange like the New York Stock Exchange.

Anyone can invest in a public company by purchasing shares, allowing these businesses to raise large amounts of capital from a diverse range of investors. In exchange, shareholders have certain voting rights and share in the profits through dividends and stock price appreciation.

For companies and investors alike, public corporations play an important role in a capitalist economy. They allow entrepreneurs to scale new ideas and let people put their money to work in the businesses and technologies that will shape the future.

What is a Public Corporation in Nigeria?

A public corporation, in Nigeria, is a company that’s owned by the government but operates like a private business. The government establishes public corporations to provide essential services to citizens or develop strategic areas of the economy.

While the government funds and oversees public corporations, they are run independently by appointed executives and boards. The government gives them commercial objectives and expects them to generate revenue, innovate, and sustain themselves financially. Some well-known examples of Public Corporation in Nigeria include, Nigerian Railway Corporation (NRC), Central Bank of Nigeria, (CBN), Nigerian Postal Service, Nigerian Defence Industries Corporation, National Universities Commission, and Water Boards/Water corporations across the country.

Public corporations benefit the public by providing affordable, accessible services and infrastructure. For the government, they achieve policy objectives without direct management and their profits can provide funding. However, there is a risk of mismanagement and inefficiency due to lack of competition.

To sum up, public corporations in Nigeria are government-owned companies that operate commercially to serve the public interest. When run properly, they can positively impact both citizens and the economy. However, strong oversight and governance are needed to ensure accountability, efficiency and sustainability.

Features of Public Corporations

These are some of the features of Public Corporation:

1. Availability of Capital: Public corporations can raise huge funds from investors by issuing shares to the public. This wide capital base supports large scale business operations.
2. Limited Liability: The liability of shareholders is limited to the amount invested in the shares. Personal assets of shareholders are protected even if the company incurs losses.
3. Transferability of Ownership Interest: The shares of public corporations are freely transferable, so the investors can sell their shares whenever they want through stock exchanges. This provides liquidity to the investors.
4. Professional Management: Public corporations hire professional managers to run the business efficiently. These professional managers have expertise and experience to manage large organizations.
5. Status and Prestige: Public corporations enjoy greater status and prestige due to their large size and availability of their shares for trading on stock exchanges. This helps in attracting more investors and a quality workforce.
6. Separation of ownership and management: Shareholders own the company but executives run it.
7. Continuity: The existence of a public corporation continues even after the death or exit of shareholders. Its shares keep on transferring from one investor to another. This ensures longevity and stability.
8. Scope for Expansion: A public corporation has more opportunities for expansion and growth due to easy access to huge capital. It can introduce new products, expand into new markets and acquire other companies.
9. High Rewards: Shareholders of public corporations can earn high returns over the long term in the form of capital gains and dividends. Although risky, investment in shares often yields higher returns than other assets.

Advantages of Being a Public Corporation

These are some of the advantages of Public Corporation:

Access to capital

As a public company, you can raise funds by issuing shares of stock to the public. This allows you to have access to more capital for expansion and growth.

Increased visibility

Being a public company increases your visibility and credibility. It helps to build brand awareness and attract top talent.

Liquidity for investors

Shareholders can easily buy and sell shares, providing liquidity. This makes the shares more attractive to investors.

Valuation

A public listing helps determine the company’s market value based on supply and demand. This valuation can be used to raise more funds or make acquisitions.

Mergers and acquisitions

A public company can use its shares as currency to acquire other companies. This makes mergers and acquisitions easier.

Exit strategy for investors

Founders and early investors can achieve liquidity by selling their shares on the public market. This provides an exit mechanism for private investors.

Incentives for employees

Employees can be provided shares or share options. This acts as an incentive and motivates them to contribute to the company’s success.

Prestige

A public listing brings prestige and credibility. It establishes the company as a leading player in the industry. This prestige can open new opportunities.

Disadvantages and Challenges of Public Corporations

These are some of the limitations of Public Corporation:

Lack of control

As a public corporation, control over major decisions is diluted. Shareholders own the company, so executives have to consider shareholder interests, even if it goes against their vision.

Discourages risk-taking

The pressure to maximize shareholder returns can discourage risk-taking. Executives may avoid ambitious projects that could drive innovation.

Cost of compliance

Public companies face heavy regulations to protect shareholders. Compliance requires resources that private companies can allocate elsewhere.

Vulnerable to takeovers

Public companies are vulnerable to takeovers and mergers that can disrupt operations. While takeovers aren’t always bad, the threat can distract management.

Focus on short-term gains

There is pressure to boost quarterly earnings and share price, which can lead to short-term thinking. Long-term strategic goals may be sacrificed for temporary gains.

Loss of confidentiality

As a public company, more information must be disclosed, which can threaten competitive advantages. Sensitive data may become visible to competitors.

Increased liability

Public companies face greater liability risks related to shareholder lawsuits and regulatory penalties. This liability exposure is higher than for private companies.

Cost of equity financing

Although public companies have greater access to capital, equity financing via public share offerings is typically more expensive than private equity or debt financing. Legal and underwriting fees can be substantial.

What is the Difference Between a Public Corporation and a Private Corporation?

A public corporation, also known as a publicly traded company, has shares that are traded freely on a public stock exchange. A private corporation, on the other hand, is privately held and does not have shares that are traded on a public market.

These are some of the major differences between a public and private corporation:

1. Ownership:

Public corps have shares owned by public investors, while private corps have shares owned by founders, family, and private equity firms.

2. Access to capital:

Public corps can raise funds from public markets, while private corps rely on private investments and loans. Public companies typically have an easier time raising larger amounts of capital.

3. Reporting requirements:

Public corps must comply with regulatory reporting, but private corps have more flexibility and less transparency. Public companies have to disclose financials and other info, while private companies can keep info confidential.

4. Liability:

Shareholders of public corps typically have limited liability, while owners of private corps often have unlimited liability. The owners of private companies can be personally liable for the company’s debts and liabilities.

5. Continuity:

Public corps typically have perpetual existence, while private corps often dissolve when owners retire or pass away. Public companies can continue operating indefinitely, while private companies may be dependent on their owners.

6. Control:

Founders and executives of public corps typically have less control, as they are accountable to public shareholders and boards. Owners of private corps usually have more control and flexibility to run the company as they choose.

7. Liquidity:

Shares of public corps are highly liquid, while shares of private corps are highly illiquid since they are not publicly traded. It is easy to buy and sell shares of public companies, but difficult for private companies.

Frequently Asked Questions About Public Corporations

Have questions about public corporations? Here are some common FAQs:

What exactly is a public corporation?

A public corporation, also known as a publicly traded company, is a corporation that has issued shares of stock to the public through an initial public offering (IPO). This means anyone can buy and trade shares of the company on a public stock exchange.

What was the First Public Corporation Established in Nigeria?

The first public corporation established in Nigeria was the Nigerian Railway Corporation (NRC).

Who’s in charge of a public corporation?

A board of directors is elected by shareholders to oversee the company’s management. The board then appoints corporate officers like the CEO to handle day-to-day operations.

How are public corporations financed?

They raise money by issuing shares of stock to the public, which are then traded on a stock exchange. Shareholders can buy and sell shares, and the corporation benefits from the initial offering.

Overall, public corporations aim to raise capital from many shareholders while still maintaining some control over operations. With good management and governance, they can be very successful. Conclusion

So there you have it, the lowdown on public corporations. They let lots of investors get in on the action and can raise tons of capital, but have to deal with regulations and reporting requirements. The perks like limited liability are enticing for founders, though going public does dilute ownership. Before taking your own company public, think long and hard about all the pros and cons we covered. The decision impacts everything from finances to operations. But if you decide it could turbocharge growth, it may be the right strategic move at the right time.