BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

BOWEN UNIVERSITY, IWO

BUS 210 LECTURE NOTES

BY

Dr. OLUWABUNMI FALEBITA

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

3. Public Corporations
A public corporation can be defined as a business entity, owned, controlled, managed,
established and financed by the government, with the aim of meeting the welfare needs of the
citizens. It is created by the special act of the parliament, which defines the power, privileges,
duties and patterns of management of these organizations. It enjoys complete autonomy in
management, it is clothed with the power of government, and possesses flexibility and initiative
of private enterprises. The shares of public corporation are publicly traded and held by a large
number of shareholders.
A corporation, chartered by the state in which it is headquartered, is considered by law to be a
unique entity, separate and apart from those who own it. A corporation can be taxed; it can be
sued; it can enter into contractual agreements. The owners of a corporation are its shareholders.
The shareholders elect a board of directors to oversee the major policies and decisions. The
corporation has a life of its own and does not dissolve when ownership changes.
A corporation is a business which is considered a separate entity from you; even having the
legal rights of a person.
Public enterprises are big organization created and controlled by Act of parliament of the
Federal Government. These organizations are run by a board appointed by the government.
Essentially, this form of business organization are monopolies and have strategic objective of
controlling the economy for the purpose of rendering essential services, such as water supply,
electricity, postal services etc. Examples are the Nigerian National Petroleum Corporation
(NNPC), Power Holding Corporation of Nigeria (PHCN), and Federal Radio Corporation of
Nigeria (FRCN)

Characteristics of Public Corporation

Public enterprises provide services rather than provide goods in Nigeria. There are many
attributes of services which will be discussed. These attributes include:
It is owned by government and financed by tax payer`s money
A huge capital involvement is significant in the establishment, running and
maintenance of the public corporation.
Public Corporation is not set up to provide essential services to the general public at the
least affordable price. Essential services rendered are meant for the benefit of the entire
populace such as provision of electricity and pipe borne water among others.
A public corporation is established by Acts of Parliament.
Public corporation enjoys monopolistic power in the sense that there is no competition
from other organization in the provision of the essential services.
Public corporations are managed and controlled by Board of Directors appointed by the
same government.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

Features of Public Corporation

1. Formation:
Public corporation is created by a special act of parliament. It has a separate legal status
and it can buy, own and sell property in its own name. It can sue and be sued in courts
of law. Its motive is to deliver goods and services to public at fair price.
2. Capital
Initial capital of public corporation is provided by government through budget. It can
borrow funds from government and public. It can also issue shares to public. Its income
is deposited in its own account.

3. Flexibility
It enjoys autonomy and flexibility in internal operations. It has its own rules and
regulations. They are similar to government rules and regulations. However, it must
follow government decisions.
4. Staffing
Public corporation hires its own employees. They are not civil servants. It determines
their salaries and benefits. They cannot be transferred by government decisions.
5. Management and control
Its management is done by government appointed board of directors. The government
also appoints its chief executive officer. It is controlled by government according to
provisions of the special act.
6. Public accountability
Public corporation is accountable to public through parliament. The auditor general
audits its account and reports its performance.
Advantages of Public Corporations
i. Legal Status: The owners of public corporations cannot be sued to court, but the corporations
themselves can sue and be sued because they are legal entities.
ii. Availability of Large Capital: Public corporations enjoy the advantage of having large
capital base because they are financed by government with tax payers’ money. This is why
they are able to render essential services at reasonable amount.
iii. Large-Scale Production: Public corporations can enjoy economies of large-scale
production because they have huge capital resources that can be used to operate large
economies of scale in serving very large market.
iv. Generation of Employment Opportunities: Apart from agriculture and government
administrative duties, public corporations provide more employment opportunities than other
business organizations because this is one of the reasons why government established them.
v. Monopoly Power: Public corporations are not to compete with any other business
organizations. They are also protected by government through law as private enterprises are
not allowed to duplicate public corporation effort in the provision of essential services.
vi. Continuity: Public corporations are going concerns whose continued existence is
guaranteed. The exit of a member of the Board of Directors or their dissolution or even a change
of government can never affect the continued existence of a public corporation.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

vii. Employee Welfare: The interests of the workers of public corporations are adequately
taken care of through various welfare schemes available to them, e.g. conducive working
environment, health and safety provision, pension and gratuity among others.
viii. Provision of Efficient Services: In theory, public corporations are established to provide
essential services needed by members of the public at affordable prices because they are
supported by the government financially and otherwise.
ix. Prevention of Exploitation: The sole aim of public corporations is the provision of
essential services for the generality of people and not for profit motive. Therefore, they are
devoid of any exploitative tendencies. That is why they charge reasonable prices for their
services.
x. Shareholders have limited liability for the corporation’s debts or judgments against the
corporations.
xi. Corporations can raise additional funds through the sale of stock.
xii. It has autonomy.
xiii. A corporation may deduct the cost of benefits it provides to officers and employees.
xiv. Can elect corporation status if certain requirements are met. This election enables company
to be taxed similar to a partnership.
xv. There is high rate of job security in public corporations
xvi. Growth and expansion is fast based on its ownership
xvii. It can result in economic growth and development
Disadvantages of Public Corporations
1. Undue Government Interferences: The Board of Directors appointed on political basis to
oversee public corporations is unduly interfered with by the government in the internal day to
day management of these corporations. These undue interferences prevent policy stability and
good business judgment in decision making process of the directors of these corporations.
2. Bureaucracy: There are lot of complicated administrative bottlenecks and lot of red-tapism
which delay decision making, slow down implementation of action plan and sometimes lose
focus or direction.
3. Inefficiency: This is as a result of the unconcern attitude of the workers to work. In fact,
many public corporations are manifestations of inefficiency. Workers are not serious because
they view pubic corporations as property of nobody and when they reported for work they are
“not on seat” fifty percent of the working hours. There is generally poor attitude to work.
4. Huge Capital Involvement: The establishment of public corporations require huge capital
which the government may not even be able to undertake on its own unless she enjoy financial
backings from external bodies.
5. Delay in Policy and Decision Formulation: This is because their decisions and policies are
taken and made by members of the board of directors, subject to government ratification. In
addition, the Acts of Parliament that established them make it difficult for them to change easily
in order to suit new conditions.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

6. Social Vices: One of the reasons for poor performance of public corporations is the existence
of social vices in the day-to-day management and administration of these public corporations.
Social vices that are evident in public corporations included but not limited to nepotism,
tribalism, bribery and corruption, and political victimization. These and other vices do cripple
public corporations in the performance of their functions.
7. Lack of cordial relationship among workers and Board of Directors which may be as a result
of differences in political views or some other sentiments which may not augur well for the
progress of the organization.
8. Enjoyment of monopoly as a result of government ownership of these corporations makes
them to operate without competition and it renders them inefficient. In addition, many public
corporations are inefficient because their Officials strive in delusion that government’s main
motive for establishing these corporations is not to make profits.
9. Civil servants lack the necessary business acumen for effective performance of public
corporations. Favouritism in the appointment of general manager and Board of Directors leads
to the enthronement and glorification of mediocrity in place of meritocracy. In other words,
appointments into the high echelon of the administrations of public corporations are based on
political rather than economic considerations as a result of government ownership.
10. The process of incorporation requires more time and money than other forms of
organization.
11. Corporations are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.
12. The decision making process is slow.
13. There is high rate of corruption
14. Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible form business income, thus this income can be taxed twice.

4. Limited Liability Company (LLC)

Is an association of individuals who agree to and jointly pool their capital together in order to
establish and own a business venture that is distinct from their owners.
The LLC is a relatively new type of hybrid business structure that is now permissible in most
states. It is designed to provide the limited liability features of a corporation and the tax
efficiencies and operational flexibility of a partnership. Formation is more complex and formal
than that of a general partnership. A Limited Liability Company also known as a LLC is a new
form of business structure which was developed for entrepreneurs who want the limited
liability benefit of a corporation with the tax benefits of a partnership. You can even think of it
as the new hybrid of business structures. Like a corporation, Limited Liability Companies
(LLCs) require shares, however owners are called members not shareholders.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

Types of Limited Liability Companies

Two types of limited liability companies are easily identified these are:
1. Private Limited Liability Company: this type of company is one whose membership
is limited to fifty whereas the minimum membership is two. It is known as close
company because the company can neither request nor subscribe to shares from the
general public. This type of company is formed with a specified number of persons,
and owners liability are limited to their shares. Commonly known as ltd.

2. Public Limited Liability Company: Here, the minimum number of persons that can
form it is seven while it has no maximum number. This type of company is free to invite
members of the public to contribute capital for the running of the company by buying
shares. These shareholders who are the real owners of the company are free to transfer
their shares to other people. Commonly known as Plc.

Formation of a Limited Liability Company

The formation of a limited liability company is usually started with the preparation of certain
documents that will be presented to the Registrar of Companies for his perusal and subsequent
registration. This preparation is normally done by a solicitor or a business consultant. The main
documents that are involved in company formation are:
a. Memorandum of Association
b. Articles of Association
Memorandum of Association: This document states clearly the relationship between the
company and the outside world. It specifies the name, location, objectives, etc. of the company.
The memorandum of association has all or some of the following as it content:
The name of the company with the “Plc” at the last word.
The location of the registered office of the company.
The objectives of the company.
Proposed amount of the registered capital.
A statement indicating the liability of the company’s shareholders.
It is a set of regulations laid down to guide the company and its members.
Articles of Association: This document lays down the internal rules and regulations governing
the organisation and management of the company. The articles of association of a company
contains the following:
The duties, rights and position of each member of the company.
The method of the appointment and demand of the directors.
The rights and powers of the directors.
How dividends are to be shared.
How general meetings are to be held and the procedure.
Method of electing directors and the voting rights at such election.
Method of auditing the company’s accounts.
The procedures for the issue and transfer of shares.
The rights and responsibilities of shareholders. Articles of Association contain
the rules and regulations of conducting the internal affairs of the company.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

Statutory Declaration: This document states that the promoters of the company have
complied with the requirements of the Companies Act No. 51 of 1968.
The Prospectus: This is a document of notice, circular, advertisement or other invitation
offering the public subscription or purchase of shares or debentures of a company. A prospectus
is issued by public limited liability companies and it serves as a mechanism for raising capital.
For members of the public not to be misled, it is mandatory that a copy of the prospectus must
be filed with the Registrar of Companies after been approved by the Council of Stock
Exchange.
Certificate of Incorporation: This is the certificate issued by the Registrar of Companies to
signify that a business unit has been incorporated. This certificate can only be issued if after
scrutinizing the above two documents – the memorandum of association and articles of
association – by the Registrar of Companies and he feel satisfied. The certificate of
incorporation confers legal status on a company.
Certificate of Trading: This is a certificate issued to a public limited liability company also
known as Joint Stock Company by the Registrar of Companies to commence business and
exercise borrowing powers. This certificate is issued only if the Registrar is satisfied that the
company has raised the minimum amount of capital needed to get started. A private company
is not issued with this certificate and does not need it and therefore can commence business if
it receives its certificate of incorporation, whereas the case of a public company is not so as it
needs both the certificate of incorporation and certificate of trading before it can commence
full business. It should be noted therefore that: the certificate of trading is only issued when the
company has fulfilled certain requirements like raising the minimum required capital from the
public, and each director has paid for his own shares etc.
Characteristics
It is a legal entity
It has unlimited lifespan, and can only be dissolved by State approval
The company is taxed differently from its owners
The personal assets of the owners cannot be sold to pay for the debt of the business.

Advantages
• Limited Liability
• Taxed as a partnership (not in all states however)
• Unlimited number of members allowed
• Members can include individuals, corporations and other LLCs

Disadvantages
• Slow decision making
• Disagreement
• Heavy taxes
• Registration process is cumbersome
• Some states do not allow one member Limited Liability companies
• Businesses such as banks and insurance companies cannot become Limited Liability
companies.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

Further Readings
1. www.investopedia.com
2. study.com
3. dictionary.cambridge.org
4. Walid Mughal, (2017) Nature and scope of a business
5. i2bnotes.blogspot.com.ng
6. Starting a small business.com, http://www.starting-a-smallbusiness.com/forms-of-
business-ownership.html.
7. allbusiness.com “Forms of business ownerships” https://www.allbusiness.com/forms-
of-business-ownership-674-1.html/3
8. Roles of government in business: small business.chron.com
9. America.gov: The roles of government
10. Isimoya A. O., Nigerian Business Environment an Introduction. Concept Publications,
ISBN 978-8065 546

Oluwabunmi Falebita, PhD