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What is a Federal Corporation?

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  • Written By: Christopher John
  • Edited By: R. Halprin
  • Last Modified Date: 24 September 2016
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A federal corporation is an entity created by the U.S. Congress to perform a public service. The Congress creates a federal corporation by passing a law that defines the size, purpose, structure, and authority of the entity. The U.S. Postal Service, National Railroad Passenger Corporation (Amtrak), and the Federal Deposit Insurance Corporation (FDIC) are examples of federal corporations. 

Numerous countries establish corporations through legislative enactments. The term federal corporation appears, however, to be unique to the U.S. Various other countries that establish corporations use terms such as statutory corporation, Crown Corporation, government owned corporation, or state owned corporation to describe government created corporations. 

The U.S. does not have a general incorporation statute. As a result, the characteristics of a federal corporation vary widely because the Congress must enact a separate law for each. For instance, Congress may require a corporation to earn revenue from the services and products it provides to the public. This helps to eliminate or minimize the need to subsidize the entity with taxpayer money. Congress does not necessarily require all federal corporations to generate revenue. 

This kind of corporation may exist in perpetuity while another may dissolve upon accomplishing a specific objective. Congress may, for example, create a corporation to help transition a federal agency into a private entity. Upon accomplishing its purpose, it will dissolve. 

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A benefit of establishing a federal corporation is to minimize politics from the management and objectives of the corporate entity. Congress may establish a board of directors to manage a corporation. This does not, however, insulate the corporation from politics entirely because Congress can provide oversight through Congressional committees and appointment of directors. In addition, a board of directors or chief executive officer of the corporation is typically required to answer to the President of the U.S. or to some other executive branch official. 

A government-sponsored enterprise (GSE) is different from a federal corporation. A GSE is similar to a federal corporation because Congress creates it through legislation. The government also regulates a GSE. A GSE is privately owned and its purpose is to earn money for its owners. Fannie Mae, a financial institution, is an example of a GSE.

The U.S. Constitution limits the actions of a federal corporation because it remains a governmental agency. It is obligated to perform a governmental function established by law. Even if the entity is partly owned by private persons or private entities, it be unable to escape constitutional restraints.

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