What is a Government Corporation?

Basic Idea

There are a number of reasons why governments want to be involved in the life of the commerce sector. Sometimes government-owned corporations are created in order to streamline certain national activities, or to provide more or less consistent support for certain industries. The most direct way for a government to be involved in something is often to create an oversight agency or office, but this isn’t always practical — and may not always be advantageous, either. Allowing corporations to operate in the private sector but with oversight and influence from higher up often provides the most benefits when it comes to innovation, profitability, and success.

The structure necessarily varies depending on the specific company at issue, but in most cases, the top official in the country will designate at least some of the directors who are on the corporations’ boards. If the national government sets out the purposes, powers and obligations of a government corporations, they will also usually specify incorporators.

Ownership Models

A government corporation is typically labeled as wholly owned, mixed-ownership, or private, depending in large part on how it is structured. Wholly owned corporations will generally produce 100 percent equity for the government. In addition, the corporation will typically hold or control 100 percent of the votes on each company’s board.

Mixed-ownership corporations are those in which the government owns some of the equity in the company, but some is also left to other investors. The charter typically mandates that the president, prime minister, or other leader will appoint at least a small portion of the directors, often correlating to the percentage of equity owned.

Private corporations are often something of a special circumstance. In these instances, the government doesn’t usually hold any equity, but often has a power of influence when it comes to things like board selection and profit dispersal. It’s often the case that corporations in this category perform important government services.

Organizations Designed for Government Involvement

Some of the most easily understood government corporations were designed and conceived with government involvement in mind, usually as a means of providing some service to the public. The Canadian Broadcasting Corporation, for instance, is one of the largest and most well known companies owned by the Canadian government. The corporation acts as an independent company insofar as it has freedom to decide which 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), Environmental Protection Agency (EPA), and Federal Deposit Insurance Corporation (FDIC), for instance, are all government corporations in one form or another. The USPS and FDIC are owned entirely by the government, but also have the highest level of political independence. The EPA is a similar corporation, but does not garner quite the same political independence as the other two.

Corporations Resulting from Bailout or Takeover

Sometimes companies that started out as private are taken over by the government, which can turn them into de facto government corporations even though they didn’t start that way. The U.S. bailouts after the economic recession of 2008 are a good example. The government’s funding action meant that companies including Citigroup, American International Group, General Motors, and Chrysler became subsidized in order to resist bankruptcy. The United States government viewed these corporations as vital to the national economy, and provided funding in exchange for a stake in their future.

Not all conversions are so amicable. There have also been situations in which governments take over private sector industries, usually in order to control the information they are disseminating or to harness their efficiencies for some larger national purpose. In China, for example, most private companies are fully owned by the Chinese national government. This gives that government enormous control over the marketplace.