What Is a Non-Financial Corporation?
Local companies that are in the import/export business, trade with foreign companies or access financing from larger banks often encounter non-financial corporations, a term that is commonly used outside the United States. Corporations are organizations that exist as separate legal entities from their founders and fulfill a number of roles in society. Non-financial corporations provide goods and services that drive the U.S. and the world economy.
Non-financial corporations principally engage in the production of market goods and non-financial services and their financial transactions are wholly distinct from those of their owners. Non-financial corporations can be private and public corporations, holding companies, nonprofits or associations. The term "non-financial corporation" is more generally used as a descriptor in Europe, Asia and Australia than in the United States. General Motors, Exxon and IKEA are non-financial corporations; J.P. Morgan Chase, Citigroup and Societe Generale are not.
Non-financial corporations fall primarily into three sub-sectors: public, private and foreign-controlled. Public non-financial corporations are directly or indirectly majority-owned by a government. In these public entities, government personnel or agencies determine corporate policy and appoint board directors. Private non-financial corporations include corporations that trade on one or more stock exchanges and that are privately owned by shareholder groups, other corporations and other private entities. Foreign-controlled non-financial corporations operate in a country different from which its parent or shareholders reside.
Non-financial quasi-corporations encompass market producers primarily engaged in the production of goods and non-financial services that do not have an independent legal status. Quasi-corporations must run their operations and accounting systems as if they were corporations. Non-financial quasi-corporation owners are essentially shareholders. As with regular non-financial corporations, quasi-corporations can be privately or publicly owned. They can also be owned by nonprofits.
The distinction "non-financial corporation" is most often made when also discussing financial corporations, or those corporations that provide financial services. Financial corporations include insurance companies, commercial lenders and banks. Non-financial corporations develop and deliver goods and services to meet the needs of businesses and consumers. Financial corporations support these entities by providing them with the financing and risk products that enable them to operate and absorb market and business fluctuations.