Public Corporation Law: Everything You Need to Know
Public corporation law is created to govern the actions and activities of public corporations created by a state to execute public missions and services.3 min read
Public corporation law is created with the sole intention of governing the actions and activities of public corporations created by a state to execute public missions and services.
In order to carry out these services and missions, public corporations provide services or participate in activities similar to that of private enterprises.
To ensure success, public corporations are granted operational flexibility while retaining the principles of fundamental public policy and public accountability. A public corporation's board of directors is appointed by the sitting Governor while the Senate confirms said appointment. However, the board of directors has the authority to manage the public corporation's operations and set policy as they see fit.
Any district, county, or city that is organized for public purposes can be designated as a public corporation.
Under the law, corporations are entities (usually businesses) that have the authority to act as a person separate from its owners (shareholders). There are various kinds of corporations in existence and are classified based on the following factors
- Business purpose
- Manner of taxation
- Amount of stock issued and number of shareholders
- Incorporated as a for-profit or non-profit
Types of Corporations
The following are the various types of corporations
These are corporations formed to make a profit by engaging in commercial purposes. It is also known as a for-profit corporation.
These are corporations whose income are taxed through the corporation itself rather than its shareholders. Under the IRS Code, any corporation not specifically designated as an S Corporation is a C Corporation.
Although the privileges and requirements of close corporations vary, they are corporations whose stocks are freely traded but held by few shareholders, often from the same family.
These are corporations where a single firm or individual holds the majority of stock
These kinds of corporations are formed to provide profits and services to its members. Some examples include corporations formed to invest in real estate properties (such as apartment buildings) so that members can benefit from the lease on the apartments.
Although they are registered in one state, foreign corporations are authorized to carry out business transactions in multiple states. Sometimes referred to as overseas corporations transacting business within the U.S., these kinds of corporations are usually created to benefit from state incorporation laws and tax breaks.
These are corporations organized for special purposes not related to profit making. They are usually eligible for tax-exempt status.
These are created and constituted by private individuals for nonpublic purposes such as railroad, banking, and manufacturing corporations. They also include religious and charitable corporations.
These corporations are created for and made up of professional types such as veterinarians, physicians, lawyers, accountants, architects, etc. They provide services whose execution requires some form of professional license.
A public corporation is one whose shares are traded to the general public. They are typically government-owned (although they remain financial independent) and provide services that benefit the general public.
These kinds of corporations are taxed through the income/dividend paid out to its shareholders. Under the IRS Code, only corporations with a limited number of shareholders are eligible for S-corporation tax status.
Private vs. Public Corporation
The major difference between a public and private company is that the shares of private companies are not made available to the public. A vast majority of companies are private and range from one person operations to multinationals with hundreds of shareholders.
Closed corporations are close alternatives to the private company structure. Although the shares are also not available to the public, there are restrictions in place that limits the maximum number of shareholders they can have. Close corporations resemble partnerships since the majority or all of the shareholders participate in setting corporate policy as well managing the affairs of the corporation.
To qualify as a close corporation, all the statutory requirements of the particular jurisdiction must be met and the entity must choose to refer to itself as a close corporation. Close corporations have fewer formalities and often have a small asset base.
Public companies are held accountable by their shareholders and subject to further restrictions than privately held companies. Their shares are open to the public — resulting in a higher minimum number of shareholders and directors as well as higher minimum authorized share capital.
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