Corporate Business Structures | Structuring Your Business

Public Corporations

Information regarding Public Corporations and public corporate structures is provided in the following sub-sections:

DESCRIPTION

A company whose shares are publicly traded and are usually held by a large number of shareholders. Public Corporations can also be a government owned company such as an airline or public transit company. Public corporations are a corporate body created by an Act of government. The Act defines the power, duties, privileges and pattern of management for these organizations. A public corporate structure enjoys complete autonomy in management.

FEATURES

  • It is a corporate body created by the special act in the state or central legislature. The power and duties of these corporations are defined by this Act.
  • It enjoys the status of a legal entity and as such it can enter into contract in its own name.
  • It is completely owned by the government and as such no private individuals are entitled to purchase shares of these organizations.
  • Public corporate structures are managed by a board of directors. The members of the board are from all walks of industry and commerce. The chairmen of these corporations are appointed by the government.
  • The entire capital is financed by the government. It was set up with a capital of its own and is entitled to borrow, use and re-use revenue from the sale of goods.
  • Public corporations are primarily meant to render service and making profit is its secondary considerations.
  • The employees of corporation are subject to service conditions laid down by the corporation. Civil service rules for the government do not apply to the employees of the corporation.

CHOOSING

  • Public corporations are capable of raising capital (finance) from an Initial Public Offering (IPO) as people buy shares in the company, since public corporations are publicly listed on a stock exchange (usually NYSE, LSE or NASDAQ). This is the most significant advantage of a public corporation.
  • In addition to the ease of raising capital, public companies may issue their securities as compensation for those that provide services to the company, such as their directors, officers and employees. While private companies may also issue their securities as compensation for services, the recipient of those securities often have difficulty selling those securities on the open market.
  • Securities from a public company, typically have an established fair market value at any given time as determined by the price the security is sold for on the stock exchange where the security is traded.
  • Another advantage is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers.
  • Public corporate structures are regulated by the Securities and Exchange Act of 1934 in regard to periodic financial reporting, which may be difficult for newer public companies. They must also meet other rules and regulations that are monitored by the Securities and Exchange Commission (SEC). More importantly, especially for smaller companies, is the cost of complying with regulatory requirements can be very high.
  • There are increased regulatory requirements for Public Corporations with the implementation of the Sarbanes-Oxley Act some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments and accounting oversight committees.

TYPICAL USES

Public Corporations are typically only used in situations where the incorporators are certain that they want the company to proceed to an IPO at a future date. Because of the many regulatory issues surrounding the implementation of Public Corporate structures, the possibility of using this type of entity should be closely examined and all of the potential issues and requirements understood prior to engaging this entity type.

TAX COMPLIANCE

With recent changes to many of the laws governing corporations, the implementation of the Public Corporation. There is a very narrow set of cases where the use of a Public Corporation is considered the appropriate entity. Without the expectation of needing to raise capital by offering securities for sale and thereby engaging many regulatory requirements, the larger percentage of incorporators will want to implement a different entity structure for their company.

PRICING

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