Crown Corporation: Overview, Types, Special Consideration

What Is a Crown Corporation?

A crown corporation is any corporation that is established and regulated by a country's state or government. In contrast to private companies, which are privately owned, structured, and operated to serve the owners or shareholders of the company, a crown company is commercially owned by either a national or regional governmental authority. Civil servants partially control and operate this type of company, which is meant to serve the public interest as determined by the current administration.

The term "crown corporation" is most common in Commonwealth countries such as Canada, New Zealand, and Australia. Elsewhere around the world, crown corporations are referred to as government-owned corporations (GOC), state-owned enterprises (SOE), crown entities, or government business enterprises (GBE).

Understanding Crown Corporations

Crown corporations can either be federal, owned by the government to serve a national interest, or a provincial/territorial corporation, which is meant to serve a provincial or regional interest. In some cases, such as New Zealand (which has several forms of crown entities), the government doesn't own entirely but has a controlling interest in a company, perhaps by holding a majority of voting shares and having the ability to appoint the majority of ruling members of the corporations.

The funding structures for crown corporations vary. Some are entirely government-funded, others are completely financially self-sufficient, profit-making entities. In the latter case, these crown corporations pay dividends, and the government, as the solitary stakeholder, collects profits. 

In general, crown corporations are supposed to operate at arm's length from the government. But the funding structures for crown corporations also determine, to a large extent, how much autonomy a crown corporation has. Profit-seeking crown corporations in competitive markets, for example, are classified differently than other crown corporations, are not typically subject to as much government oversight as other crown corporations—for example, they don't have to submit annual operating budgets.

Generally speaking, though, the government has a large degree of discretion, as the government typically makes final decisions regarding the CEO and board members. All crown corporations have to undergo an annual audit; most have to submit annual corporate plans, operating budgets, and capital budgets for approval, and quarterly reports. The government can issue directives to the board.

Types of Crown Corporations

Crown corporations are generally created to fill a need the government feels is not being met by the private sector, which is either unable or unwilling to provide certain services the government deems necessary or in the national interest.

Often, they provide services that would not be economically feasible for a private enterprise to undertake, such as delivering mail or providing passenger transport to remote or sparsely populated parts of the country.

Along with transportation and infrastructure, crown corporations often operate in these sectors:

• Energy
• Utilities
• Media
• Arts
• Banking/finance/insurance
• Agriculture

Special Considerations

These companies are often created by the government and may be entirely or partially owned by the public sector. This has, historically, created some confusion around their status. Are they a government body, or a private corporation or enterprise? 

A 2005 report from the Canadian Treasury Board entitled "Review of the Governance Framework for Canada's Crown Corporations" stated that crown corporations are "instruments of public policy." This would lead one to believe that crown corporations exist and are formed to advance policy objectives. However, some of these crown corporations also engage in commercial activities and have competitive pressures to address. This can, at times, create a conflict of interest between policy objectives and commercial obligations and goals.