Corporations and quasi-corporations
2.13. In SNA93, a corporation is defined as 'a legal entity, created for the purpose of producing goods and services for the market, that may be a source of profit or other financial gain to its owner(s); it is collectively owned by shareholders who have the authority to appoint directors responsible for its general management'. (SNA93, paragraph. 4.23.)
2.14. SNA93 lists the following typical features of corporations:
- they are created by processes of law that establish their existence as independent from other institutional units (i.e. other corporations, households, government units and NPIs) that may own shares or other equity in the corporations
- they are created for the purpose of market production, i.e. production of goods and services for sale on the market at 'economically significant prices', which are defined as prices that have a significant influence on the amounts that producers are willing to supply and purchasers wish to buy
- ownership is vested in shareholders collectively and profits are usually distributed to shareholders in proportion to their shareholdings; if a corporation is bankrupted, shareholders are not liable to repay the corporation's outstanding liabilities
- corporations are fully accountable at law for their actions, obligations and contracts and are liable to pay taxes
2.15. In Australia, most companies registered under corporations law meet the SNA93 definition of a corporation. These include proprietary companies, limited liability companies and no liability companies. However, some registered companies are not engaged in market production as defined in SNA93 and are classified as government units or NPIs (see paragraph 2.37). Conversely, certain types of legal entities that are not registered as corporations but engage in market production are treated as corporations. These include producer cooperatives in which profits are distributed according to shareholdings, and partnerships that enjoy limited liability and behave like corporations, such as large accounting firms. As well, certain trusts and their trustees that operate like corporations are treated as corporations. In effect, any entity that is engaged in market production, is authorised to distribute profits or surpluses, and keep a full set of accounts, is potentially classifiable as a corporation or a quasi-corporation.
- control of corporations is exercised ultimately by shareholders because their vote determines appointments to the board of directors; however, some shareholders may exert more control than others because of variations in voting rights or failure of shareholders to exercise their voting rights.
2.16. In SNA93, corporations that are more than 50% owned by another corporation are defined as subsidiaries of that corporation. Corporations that are up to 50% owned by another corporation can also be subsidiaries if the other corporation has the right to appoint or remove a majority of the directors of the corporation. For ABS economic collections, the definition of a subsidiary corporation is based on corporations law and is essentially the same as the SNA93 definition.
2.17. Groups of corporations may be formed in which a parent corporation controls a number of subsidiaries. SNA93 recommends against treating a group of corporations as an institutional unit because subsidiary corporations meet all the requirements for recognition as institutional units in their own right. As well, the composition of groups of corporations can change rapidly and the groups are often too heterogeneous to be useful for statistical purposes. The ABS units model includes a unit, called the enterprise group, which is defined as a group of legal entities that are under common ownership and/or control (see paragraph 2.50). The enterprise group unit is used mainly to assist administration of the ABS Business Register and is not often used in the compilation of economic statistics. The enterprise group relationship is used in some of kinds of economic statistics analysis such as ownership concentration studies including foreign ownership studies and globalisation indicators.
2.18. SNA93 includes the concept of ancillary corporations and recommends that, for statistical purposes, such corporations should be merged with their parent corporation. An ancillary corporation is defined as 'a subsidiary corporation, wholly owned by a parent corporation, whose productive activities are ancillary in nature: that is, strictly confined to providing services to the parent corporation, or other ancillary corporations owned by the same parent corporation'. (SNA93, paragraph. 4.40.)
2.19. Typical services provided by ancillary corporations to parent corporations include transport, purchasing, sales, financial services, computing, communications, security, maintenance and cleaning. SNA93 states that 'Ancillary corporations are not treated as separate institutional units because they can be regarded as artificial units created to avoid taxes, to minimize liabilities in the event of bankruptcy, or to secure other technical advantages under the tax or corporation legislation in force in a particular country'. (SNA93, paragraph. 4.44.)
2.20. For the purposes of institutional classifications the ABS recognises and applies the SNA93 concept of ancillary corporations, but in practice identification of all such corporations is not possible. Ancillary corporations that are identified include intra-group financiers and other corporations that undertake a range of ancillary activities, such as corporations that are head offices. (However, for the purpose of industry classifications, the ABS does not apply the SNA93 concept of ancillary corporations, although it is investigating whether it should be applied.)
2.21. Holding corporations are defined in SNA93 as 'corporations that control a group of subsidiary corporations and whose principal activity is owning and directing the group'. (SNA93, paragraph. 4.100.) A holding corporation is classified as a financial corporation if the predominant type of activity of the group of corporations as a whole is financial intermediation or auxiliary financial services. Otherwise, the holding corporation is classified as a non-financial corporation. In the absence of suitable information about the relative sizes of the subsidiaries, a holding corporation may be classified as financial or non-financial if a majority of the corporations it controls are financial or non-financial, respectively. Some corporations with 'holding company' in their title are actually ancillary corporations and therefore should be treated according to paragraphs 2.18-2.20.
2.22. SNA93 recommends that unincorporated enterprises which engage in market production, and function as if they are corporations should be treated as quasi-corporations and therefore as separate institutional units. Two main types of quasi-corporations are recognised in SNA93:
- unincorporated enterprises owned by resident institutional units (resident units are defined in paragraphs 3.58-3.69) and operated as if they are separate corporations having (1) the same relationship to their owners as a corporation has to its shareholders and (2) a full set of accounts, including a statement of financial position
2.23. In Australia, both categories of quasi-corporations are recognised but the ABS is unable to identify all household unincorporated enterprises that qualify as quasi-corporations (as explained in paragraph 3.16). However, in the first category in paragraph 2.22, the following types of unincorporated enterprises are recognised as quasi-corporations:
- unincorporated enterprises owned by non-resident units (non-resident units are defined in paragraphs 3.70-3.71) that engage in significant production in the economic territory of the subject country; such quasi-corporations include local branches and offices of non-resident corporations.
- unincorporated financial enterprises, except for financial auxiliaries
- unincorporated partnerships of companies and trading trusts
- unincorporated enterprises owned by government which sell output at market prices
- unincorporated enterprises assessable for income tax purposes as companies.