Corporations and Public Undertakings: Definition and Characteristics

In one line

A public corporation is a body created by a statute to carry on a public purpose, with a legal personality of its own, so that it can act with the freedom of a business while remaining answerable as an arm of the State.

In the words a student can write in an exam: a public corporation is a body corporate created by a special statute of the legislature, which defines its powers, duties, functions and pattern of management, having perpetual succession and a common seal, capable of suing and being sued in its own name, holding property and entering into contracts in its own right, financed wholly or largely from public funds, and managed by a board appointed by the Government; it is a device by which the State performs commercial, industrial, financial or developmental functions through an autonomous body rather than through a government department.

Why the device exists

The problem it solves is worth stating, because it explains every one of the characteristics.

A government department is answerable to a minister and through him to the legislature, is bound by government financial rules, must observe the service rules and the procedure of government, and cannot easily take a commercial risk or move quickly. Those features are virtues in the administration of justice or the collection of revenue. They are handicaps in running a bank, an airline, an insurance company or a power station.

A private company, on the other hand, moves quickly and is commercially efficient, but it answers to its shareholders and pursues profit, which is not what a public utility is for.

The public corporation is an attempt to have both: the flexibility of a company with the accountability of a public body. It is sometimes described as combining the initiative of private enterprise with public ownership and public purpose.

The characteristics

Seven, and an answer should explain rather than list them.

1. Created by a statute. Each public corporation owes its existence to a specific Act which defines its objects, powers, capital, management and duties. It has no existence apart from that Act, and its powers are only what the Act confers, so an act beyond them is ultra vires.

2. A body corporate with separate legal personality. It has perpetual succession and a common seal, may sue and be sued in its own name, may hold property and enter into contracts in its own right. Its employees are its employees and not government servants, and its funds are its funds.

3. Financed from public funds. Its capital is provided wholly or largely by the Government, and it is not financed by public issue of shares in the way a company is.