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SOE (State Owned Business): Definition, Meaning & Example

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SOE (State Owned Business): It is often earmarked to participate in specific commercial operations and can be owned entirely or partially by the government.

What Exactly Is a State-Owned Business?

soe definition

A government-created state-owned enterprise (SOE) is a legal entity that engages in commercial activities on behalf of the government.

Government-sponsored businesses are ubiquitous around the world, notably in the United States, where mortgage companies Freddie Mac and Fannie Mae are classified as SOE.

Point to be noted:

• A state-owned enterprise (SOE) is a business entity established by the government to carry out commercial activities.

• Any SOEs that are approved to engage in specific activities normally have the government accept full or partial ownership of them.

• SOEs sell physical resources to trade bodies and enterprises, as well as representing the government in commercial ventures.

• All countries have SOEs, although China, the United States, New Zealand, South Africa, India, and Russia have the most.

Understanding Government-Owned Businesses (SOE)

State-owned entities, also known as government-owned corporations (GOC), should not be confused with publicly traded companies whose stocks are partially held by a government body, as these companies are true public corporations with a government entity as one of their shareholders.

State-owned enterprises (SOEs) are a worldwide phenomena, with SOEs in the United States, China, South Africa, Norway, and New Zealand.

Most SOEs qualify as commercial enterprises under the law, with all the rights and duties that entails.

This implies they are usually expected to observe any rules and regulations controlling the running of their particular firm, and they can be held liable for their activities.

Example of a State-Owned Business

Mortgage businesses Freddie Mac and Fannie Mae are two of the most well-known SOEs in the United States, however SOEs are not confined to lending.

Several firms in China are backed by the government, such as the Jin Jiang Hotel, which is owned and administered by the Shanghai government.

Eskom, a power utility established in South Africa, is the world’s 11th largest firm in terms of electric-generating capacity and a government-owned SOE.

Many public transportation and utility companies, as well as postal services and some mining operations, are SOEs.

Corporations and SOE

A method known as corporatization is often used to form an SOE from a government agency.

This enables the agency to become a for-profit enterprise.

The newly constituted SOE frequently functions with government goals in mind, yet it is technically a commercial enterprise.

Governments of developing nations will occasionally establish a state-run enterprise in a sector that they aim to develop or exploit in order to improve their economic standing on the global arena, such as the oil industry in Brazil or the telecommunications industry in Argentina.

Profit and SOE

Despite the fact that an SOE is a for-profit business, some of them do not make a profit.

For example, the postal system in the United States may be losing money for long periods of time.

While some SOEs may be allowed to collapse, those that are vital to the state’s operation — notably those deemed crucial to a country’s infrastructure — may obtain government assistance to continue operating.

In many circumstances, the SOEs end up costing the government money rather than bringing in revenue.

In China, this has led to accusations that the government is artificially supporting so-called “zombie” companies that would otherwise go out of existence.

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