BUSINESS ASSOCIATIONS

PUBLIC CORPORATIONS

They are also known as parastatals. These are statutory bodies owned by the central
government to perform certain specific functions with the aim of providing goods and
services essential to the public and which are too sensitive to be left in the hands of the
private sector.

Characteristics

1. Established under an act of parliament.

2. Formed and owned by the central government
3. Mostly provide goods and services to the public at reasonable prices to generate
marginal profits to sustain their operations
4. The profit gained is used to improve on the services of the corporations as well as
a revenue for the government
5. They are legal entities and are able to enter into contracts, sue and be sued.
6. They have limited liabilities and hence the government is not liable for the debts
brought about by the firms.

Formation

Public corporations are incorporated/legal business organisation similar to limited

companies. They are formed by an act of parliament. A bill is tabled in the house seeking
the establishment of the corporation. When passed it becomes an Act that serves the same
purpose as a Memorandum of association and Article of association in limited
companies. Upon enactment and becoming law the registrar of companies issues a
certificate of incorporation that makes the organisation a legal entity and have limited
liabilities. The trade and industry minister appoints the management board hence the
corporation starts operation.

Corporations can also be formed through nationalization of private enterprise that offers
essential goods and services to the government.

Ownership
The public through the government owns the public corporations with absolute power
resting on the management board appointed by the government. The government owns all
the shares.

Management
The management board appointed by the government controls the operations of the
corporation. A managing director heads the board. This board is responsible for the
formulating and implementing the policies of the corporation and reporting its progress to
the minister who in turn reports to the parliament.

Sources of capital

1. The government owns all the shares hence the chief source of finance.
2. Borrowing from banks and other financial institutions which is controlled by the
government.
3. Trade credit. The corporation can get goods for sale from suppliers and pay for
them later.
4. Renting or leasing of corporation properties such as premises or land.
5. Ploughing of profit which help in the expansion of the corporations and hence
delivery of better services to the public.

Types of public corporations.

They are grouped according to their functions.

1. Trading and commercial corporations.

They engage in business to make profit. Part of it goes to the government while
the rest is retained to improve on their services. They are categorized into two

i. Monopolistic: They have no competition in the goods and services they offer e.g.
Kenya Power and Lighting, Kenya Railways , Kenya Oil Refineries.
ii. Those in competition with other privately owned business organizations e.g. Post
Bank, National Housing Corporation.

MARKETING BOARDS: They assist local farmers in marketing and selling their
produces at the best prices possible. Their functions include:

i. Collecting, transporting and storing farmers produce.

ii. They primarily process, grade and pack produce when necessary
iii. Search for market both locally and internationally for the produce.
iv. Provide credit to farmers’ input and offer extension services.
v. Conduct research on agricultural markets, market problems and the possible
solutions.
vi. Stabilize market prices for products and income by fairly fixing prices and storing
of unsold goods for emergency reasons.

Examples include: Kenya Planters Corporative Union (K.P.C.U), Kenya National Cereal
and Produce Board (K.N.C.P.B), Coffee Board of Kenya (C.B.K), Pyrethrum Board of
Kenya (P.B.K)

Finance and Banking Corporations

Their main functions include:

i. They provide banking services to the public

ii. Earn income for the government
iii. Mobilize funds from the public and direct it into investment
iv. Provide loans and other financial services to national development activities.

Examples include: Kenya Commercial Bank, National Bank of Kenya, ICDC,

Agriculture Finance Corporation, Industrial Development Corporation, Post Bank

Research Corporations

They provide research to support development of specialized sectors of the economy such
as health, agriculture and industry. E.g. K.C.R.F(Coffee), Kenya Medical Research
Foundation(KEMRI), Kenya Medical Research Institute(KMRI)

Development Corporations

Set up mainly to develop specific regions of the country which are partially economically
viable but have been underdeveloped e.g. Lake Board Development Authority(LBDA)
and National Irrigations Board

Regulatory Corporations

Established to control standard and quality of specific goods and services hence
determining the direction of development of the sector they represent. E.g. K.B.S, CCK,
Kenya Films Corporation, Kenya Electricity Board

Service Delivery Board

Provide certain specialized services of national importance. E.g. KN EC, KNH etc

Advantages

i. Legal Entities: They have legal power to transact business activities, own
property, sue and be sued.
ii. Limited Liability: Liability is limited to the extend of capital contributed by the
government hence protecting the government and managers of the corporation
from being liable to debts of the corporation.
iii. Large capital resource: They get large capital from the government for
establishment and expansion. In time of financial crisis, the government may also
come in and solve the crisis.
iv. Provide essential goods and services at reasonable prices and hence considering
the welfare of the public.
 v. Enjoy government backing and support e.g. when borrowing from other financial
institutions.
vi. Provide healthy competition to the private sector hence regulation of quality and
price of goods in favour of the public.
vii. Provide essential goods and services which might be too sensitive to be left in the
hands of private sector at reasonable prices.
viii. Provide revenue to the government in from of
V.A.T
Incorporation tax charged on the profit realized
Divided paid to the government as the major shareholder

ix. Promote economic development by promoting exploitation of the country’s

economic resources hence improved living standards
x. Generating employment opportunity for the public
xi. Through some public corporation, the government is able to control and direct
development of various sectors of the economy hence making it possible to check
and control all activities of the business organization in private sector.
xii. Due to the financial support they receive they are able to employ highly specialist
personnel for effective operation of the corporation

Disadvantages

i) Lack of profit motivation: Since their main aim is to achieve government objectives,
they lack profit motivation hence leading to inefficiency in some of the services they
provide. This is made worse by the fact that if they make loses, the government will
step in and uplift them.
ii) Poor management that may result from:
a. Lack of profit motivation
b. Political influence
c. Corruption that has lead to the collapse of some of the parastatals
d. Appointment of poor, unqualified top-level managers.

iii) Excessive government influence which may limit top-level managers from making
sound management decision especially if such decision seem to conflict with
perceived government policies. This demoralizes and frustrates management efforts
leading to poor performance.
iv) Lack of competition and consumer care. Monopolistic corporations seem to be
inefficient in their operation due to lack of competition. They become insensitive to
public needs and offer poor quality goods and services hence consumer reject and
gradual collapse. Of such corporations.
v) Political interference leading to political patronage and pressure in leadership, which
undermines the professional management of the corporations.
vi) Heavy burden to the government as a result of the losses made leading to the citizens
being taxed highly to finance the no performing corporations
vii) Corruption and embezzlement of corporation funds.
viii) Since the directors are appointees they lack the competence and commitment to run
the corporations profitably but would rather make decisions in favor of their political
gains and survival in the positions rather than profitability. This has led to poor
performance of the corporations.

Dissolution

They can be dissolved under the following:

i). By voluntary action of the government through the minister concerned
ii). By action of creditors
iii). Through a compulsory action of a court of law.

Their life can also end through the sale of their shares to private sector hence
privatization. They do not require complete dissolving but only change of ownership,
management and control.

Distinction between public corporations and Joint Stock Companies

i). The shareholders elect the board of directors in limited liability companies.
ii). Public corporations have no shareholders and are owned by the state as compared to
joint stock companies, which are owned by shareholders.
iii). Public corporations obtain much of their capital from the government while joint stock
companies get most capital through issue of shares.
iv). Public corporations provide public services hence operating in the public interest
covering its cost while joint stock companies exist primarily with a major aim of profit
making.

Syndicates

A syndicate is an association of individuals or corporations formed to conduct a specific

financial transaction such as buying a business. Quite often syndicates are created for the
purpose of buying sports franchises. For example, the Miami Heat basketball team and
the New York Yankees baseball team are each owned by syndicates of individuals. Each
member of these syndicates is also involved in the operation of other businesses.