Professional Documents
Culture Documents
Prepared by: - ID No
Introduction
The state has a public purpose in the exercise of its sovereign power. Such power is inherent in
statehood and justifies the existence of a government. That is primarily manifested in the specific
function of governments in discharging their traditional role of ensuring peace and security. But
any modern state assumes responsibility beyond its traditional function of maintaining peace and
order and protecting the country from external aggression, and it engages in economic activities.
To accomplish this, one of the options is setting up an entity that undertakes commercial
activities.
3. Service motive
Generally, public enterprises have service motive. They provide essential goods and services to
public at reasonable price. They are guided by social welfare motive. They also generate profit
and pay tax to the government.
4. Autonomy
Public enterprises enjoy autonomy or semi-autonomy in operations. They function as companies
and corporations. The government does not interfere in their day to day functioning. So,
autonomy is a notable characteristic of public enterprises.
5. Public accountability
Public enterprises have public accountability. They are accountable to the parliament for their
performance. The auditor general reports to the parliament about the performance of public
enterprises. They are also accountable to general public through government.
2. Public Corporation
Public corporation is created by a special act of parliament. It has separate legal status. Its
scope, objectives, power, duties and operating procedures are specified by the Act. Public
corporation is established to achieve socioeconomic objectives of the country. It is guided by
service motive. It enjoys flexibility and autonomy in internal operations. It is financed by
government and managed by government appointed board of directors. It has public
accountability through parliament.
3. Government Company
Government Company is a joint stock company created under the Company Act. It has a
separate legal status It can be public or private company. The government ownership in shares
ranges from 51% to 100%. It can borrow funds and its activities are business oriented with
service motive. It also makes profit. The liability of shareholders is limited. It enjoys full
flexibility internal operations. It follows its own rules and regulations. It is managed by a board
of directors. Government nominees have majority in the board.
7. Continued existence
Continuity is another characteristic of public enterprises because they have continued existence
and stability. They are created by law and can be dissolved only by law. Changes in
shareholders, management and employees do not affect the existence of public enterprises.
Proclamations
The constitution is very general in its expressions, and of course makes only an implied
recognition of public enterprise. This generality has to be specified and therefore legislative
enactment is required on matters of public enterprises. There exist a couple of principal laws
(proclamations) specifically dealing with public enterprises within the ambit of the constitutional
provisions. Let’s briefly examine them.
The definition of public enterprise is provided under Art 2 (1) as a “wholly state owned” entity
created to carry on for gain manufacturing, distribution, service rendering or other economic
activities. Joint ventures with private enterprises or individuals or others seem to have been
excluded from the application of the proclamation. The definition does not tell what makes the
enterprise public, apart form reading ‘wholly state owned “. But it is possible to infer some
elements of the public dimension we employed in the previous section such as public ownership
(here exclusive state ownership). On the other hand, the fact that the public enterprise operates
for gain reveals its enterprise dimension. Moreover, the phrase “economic or related activities”
depicts the open possibility for public enterprise to enter lucrative sectors.
Partnership operations
Methods of distributing profits based on partners agreement
1. Equally- it is simple to apply but does not give due recognition on the disparity of capital
contribution nor does it recognize the time and effort that a partner may devote in running
the firm’s business operations.
2. Arbitrary ratio (percentage, decimal, fraction, ratio) - it is simple to apply but does not
give recognition on the disparity of capital contributions nor does it recognize the time
and effort that a partner may devote in running the firm’s business operations.
3. Capital ratio (original, beginning, ending, average) - this method recognizes the
difference in the capital contributions but does not take into account the time and effort
that a partner may devote in running the firm’s business operations.
4. Interest on capital and the balance on agreed ratio- this method recognizes the difference
in the capital contributions but does not take into account the time and effort that a
partner may devote in running the firm’s business operations.
Interest is allowed to partners for the use of invested capital interest as agreed by the
partners shall be provided whether the income is sufficient or there is net loss unless
otherwise agreed upon by the partners.
5. Salary allowances to partners and the balance on agreed ratio-this method recognizes the
time and effort that a partner may devote in running the firm’s business operations but
does not take into consideration the differences in capital contributions.
Salaries are allowed to partners as compensation for their devoted in the business.
Salaries as agreed by the partners shall be allowed in proportion to the time the partners
actually rendered services to the firm. Such salaries shall be provided whether the profit
is sufficient or not and when there is a loss otherwise agreed upon by the partners.
6. Bonus to managing partner and the balance on agreed ratio- this method allows a bonus,
as an incentive, to the managing partner. It is usually a percentage of the profit bonus,
therefore, is allowed only when there is a profit.
Partnership dissolution
Partnership dissolution occurs whenever there a change in ownership (e.g... the addition of a new
partner, or the retirement or death of an existing partner). This is not to be confused with
partnership liquidation, which is the winding up of partnership affairs and termination of the
business under dissolution the partnership business continues, but under different ownership.
When partnership dissolution occurs a new accounting entity results. The following steps are
followed in the accounting of the partnership dissolution.
1. The partnership should first adjust its records so that all accounts are properly stated at
the date of dissolution.
2. After the income (loss) has been properly allocated to the existing partners capital
accounts, all assets and liabilities should be adjusted to their fair market value and their
present values, respectively.
a) This step is performed because the dissolution results in a new accounting entity.
3. After all adjustment has been made, the accounting dissolution depends on the type of
transaction that caused the dissolution. These transactions can be broken down in to two
types.
a. Transaction between the partnership and a partner (e.g. a new partner contribute
assets, or retiring partner withdraws assets)
b. Transaction between the partners (e.g. a new partner purchase an interest from
one or more existing partners, or a retiring partner sells his/her interest to one or
more existing partners).
Partnership liquidation
A partnership is liquidated when its business operations are completely terminated or ended. The
partnership assets are sold, the partnership creditors are paid, and the remaining assets, if any, are
distributed to the partners as a return of their investments.
Sometimes construed very narrowly to mean just the sale and legal transfer of the ownership of
public enterprise to private entrepreneurs and sometimes more broadly to include the legal
transfer of just the control of public enterprise and service but not outright ownership. Jeswald
salacuse describes privatization as the transfer of asset from the public sector to the private
sector, from the domain of public ordering to that of private ordering, which appears to fit more
into the narrower view of the term (JW salacuse, 1999) on the other hand, paul starr defines the
term as
1. Any shift of activities or functions from the state to the private sector and more
specifically
2. Any shift of the production of goods and service from public to private (P Starr, 1988),
which would fit more into the broader view of the term noted above.
This is also case with the definition by stuart Butler who sees privatization as the shifting of a
function, either in whole or in part, from the public sector to the private sector (S Butler, 1991).
Defined privatization to be the selling of an organizations shares into private ownership but the
world bank defined privatization as a transaction or transactions utilizing one or more of the
methods resulting in either the sale to private parties of a controlling interest in the share capital
of public enterprise or of a substantial part of its assets or the transfer to private parties of
operational control of a public enterprise or a substantial part of its assets.
In the past, the dominance of the public enterprise sector in most African economies warranted
the collection and publication of the sectors performance. With its diminishing size and
importance due to privatization, it is no longer informative to produce such data. Instead, as
privatization programs advance to maturity, it will become important to track the performance of
private sector businesses. In the meantime, measurement of the level of privatization activity is a
useful gauge of the decreasing role of governments in commercial business; conversely, it
indicates how much of state-owned commercial activity has been transferred to the private
sector. To the extent that data is available, it is also possible to measure how privatization has,
over time, contributed to government revenues and mobilized savings and investment. However,
this measurement is by no means easy or precise, partly because of incomplete and inconsistent
data but also because of redefinitions of the public enterprise sector. For example, some
enterprises, notably those formerly in a monopolistic position, are being split in order to separate
their commercial, social, developmental, and regulatory activities. In some cases, separate
operating divisions or geographically distinct assets are sold separately. And in yet other cases,
commercial and semi-commercial activities are being separated out from government ministries
and other agencies to become redefined as commercial enterprises. These include, for example,
business centers, media, and some training institutes. So, the public enterprise sector, as defined
several years ago, has changed. Nevertheless, the well over 3,000 privatization transactions that
were reported across Africa up to the end of 1998 have brought about fundamental changes: §
The fiscal burden of public enterprises has been reduced or eliminated. § Privatization receipts
have contributed to a reduction in fiscal deficits. § Privatization has attracted foreign direct
investment both to acquire enterprises and for post-privatization investment in those businesses.
§ The process has stimulated private sector development by making investment opportunities
available, spurring capital market development, and contributing to a more competitive business
environment. § Being a politically sensitive subject, the process has highlighted the need for
transparency and public accountability.