The main considerations driving form choice here are how close the organisation needs to be to ministers (the nature of its public policy role) and whether it needs the freedom to operate more or less commercially.

Read this table for summaries of how the different options are constituted.

Key features of different organisational and governance forms(PDF, 161 KB) 

Public policy functions

The key consideration for public policy functions is the role of the responsible minister.  They could have:

  • power to direct the agency to ‘give effect’ to government policy
  • power to direct it to ‘have regard’ to government policy, or similar influence
  • no power to direct.

Direct to ‘give effect’

The organisational design options that meet this criterion are:

  • Public Service agencies
  • Crown agents (a type of statutory Crown entity, for example the Accident Compensation Corporation and New Zealand Transport Agency).

Public Service agencies (departments, departmental agencies, interdepartmental executive boards and interdepartmental ventures) are part of the legal Crown (that is, they do not have separate corporate status; they exercise powers and legally contract in the name of the Crown). 

There is a close and hierarchical relationship between ministers and Public Service agencies, with the governance arrangements centred on a direct minister-chief executive relationship. Ministers have extensive powers to direct Public Service agencies, as long as such directions are consistent with the laws governing their activities. In the case of social security benefits, for example:

  • the statute defines eligibility for benefits
  • the minister cannot interfere with officials’ judgements on individuals’ eligibility
  • the department is, however, responsible for providing the minister with policy advice, which may include seeking changes to the statute that would affect future eligibility
  • the minister is accountable to Parliament for the amounts voted for benefits and for related expenditure, and can therefore determine what programmes or initiatives should receive discretionary funding.
  • Public Service agencies


    The types of functions and powers that require a high degree of ministerial control, oversight or accountability, and for which departments are the default choice of organisational form include:

    • activities that are an inherent function of the State (for example, the conduct of foreign policy, national defence)
    • significant coercive powers of the State (for example, policing, prisons, tax collection, emergency management)
    • policy advice to Government
    • where it is useful to group multiple functions within the same agency, but where the functions potentially conflict
    • complex activities that make it difficult to ‘contract’ for their provision over a long-time horizon (if, for example, the objectives or outputs are inherently difficult to specify or measure, or may need to be changed frequently)
    • where constitutional conventions indicate a need for close ministerial oversight or direct Ministerial responsibility (for example determining citizenship)
    • where the activity is significant and important to the government
    • where high public and political expectations are associated with the activity
    • where significant inherent, strategic or fiscal risks are posed to the Crown.

    Many departments include branded ‘business units’ that provide transparency and distinct leadership for key activities – examples include Work and Income (a business unit of Ministry of Social Development), Immigration New Zealand (Ministry of Business, Innovation and Employment) and NZ Food Safety (Ministry for Primary Industries).  These often report to a portfolio minister who is not the responsible minister for the parent department and may manage their own Vote or a significant appropriation.  The key difference between a business unit and a departmental agency is that their head is appointed by and reports to the parent department’s chief executive, who retains full responsibility and decision rights in relation to the business unit.

    Departmental agency

    A departmental agency is an operationally autonomous agency within a host department in the Public Service. Unlike a business unit within a department, a departmental agency is headed by its own chief executive, appointed by the Public Service Commissioner, who is directly responsible to the agency’s minister for clearly identified ring-fenced activities and performance. This model provides an alternative to business units, separate departments or Crown entities.

    The activities best suited to the departmental agency model would be regulatory, service delivery or other ring-fenced operations that do not need to be carried out by an entity separate from the legal Crown and that can be accountable directly to a minister.

    Supplementary guidance: departmental agencies

    Interdepartmental ventures

    These are headed by a board comprising relevant chief executives who are jointly responsible to the appropriate ministers. They deliver services or carry out regulatory functions that relate to the responsibilities of more than one department. 

    Supplementary guidance: interdepartmental ventures

    Interdepartmental executive boards

    These are Public Service agencies for the purposes of the Public Service Act. They bring together the chief executives of multiple departments and/or departmental agencies to arrive at shared decisions, reporting to a minister for the relevant portfolio.

    Supplementary guidance: interdepartmental executive boards

  • Crown agent

    Crown agents are one of the 3 types of statutory Crown entity, as defined in section 7 of the Crown Entities Act 2004. Every Crown agent:

    • is a stand-alone body corporate: it is a legal entity separate from the Crown, its board members, office holders and employees
    • has the power, subject to any specific legal restrictions such as requirements for ministerial approval, to do anything that a natural person of full age and capacity may do (for example own property and enter into contracts in its own name)
    • is subject to its own establishing legislation and the Crown Entities Act 2004.

    Under the Public Service Act, Crown agents are also part of the ‘Public Service’ alongside Public Service agencies for the purposes of public service principles, spirit of service and standards and codes of conduct.

    The legal separation from the Crown establishes an arm’s-length distance between the minister and the entity. The channels of ministerial direction to ‘give effect’ to government policy (section 103 of the Crown Entities Act) are considerably more formalised and transparent than the interactions between a minister and department. The governance arrangements are centred on the minister-Board relationship.

    The Crown Entity System

    Placing a function in a Crown agent rather than in a Public Service agency is justifiable where:

    • certain essential skills and experience can only be provided by members of a governance (not advisory) board, and/or
    • a degree of separation from ministers in the allocation of Crown resources or a significant degree of decision-making authority by the entity is needed to:
    • credibly distance ministers from politically difficult/sensitive decisions, including those involving individuals (for example ministers decided to devolve State Highway funding decisions to a Crown entity to avoid constant election year lobbying for particular roads); and/or
    • further limit the scope for ministers to become involved in decision-making.

Direct to have regard

  • Autonomous Crown entity (ACE)

    Just like Crown agents, every ACE is a standalone legal entity separate from the Crown, subject to their own enabling statutes as well as comprehensive provisions for governance, operations and accountability in the Crown Entities Act 2004. The responsible minister can direct an ACE to ‘have regard’ to government policy (section 104).

    ACEs are suitable for carrying out executive government functions that:

    • are substantial in their own right and are designed to meet identified policy objectives (for example, significant national arts and some broadcasting organisations), and
    • will be sustainable in financial and policy terms to warrant the establishment of a body corporate that is legally separate from the Crown (as opposed to meeting a specific or short-term need that could be met by a temporary body or an existing agency)
    • should come under the management skills and experience of a governance board
    • do not:
      • constitute inherent functions of the Crown, such as national security, or
      • pose significant strategic or fiscal risks for the Crown, or political risks that should come under closer ministerial control.
  • Organisation listed on the 4th Schedule of the Public Finance Act

    Some agencies were exempted from the full scope of the governance, accountability and reporting provisions in the Crown Entities Act 2004 because they were small, local or otherwise non-standard (for example, reserves boards, trusts and grants boards). Listing an agency on the 4th Schedule of the Public Finance Act ensured that minimum provisions in the Crown Entities Act 2004 applied, and provided discretion to add other requirements. The 2013 amendments to the Public Finance Act require any additions to the schedule to be made through primary legislation (except for trusts, which can be added through Order in Council (Public Finance Act s3A(1)(a))). We do not expect further PFA 4th Schedule organisations to be created given the range of other options available.

No power to direct

The governance and organisational design options that protect the independence of decision-making from ministerial influence, where necessary for reasons of public confidence, are:

  • a statutorily independent function, located in any type of entity (see Question 1f in Question 1: What type of agency), or
  • an independent Crown entity (ICE) (a type of statutory Crown entity).
  • Independent Crown entity

    An independent Crown entity (ICE) is appropriate in cases where public confidence is paramount, such that it demands a level of independence from ministers that can be provided only where the entity and its Board are:

    • neither subject to influence or easy removal by ministers (as appointment and removal decisions lie with the Governor-General)
    • nor required to give effect or have regard to the policies of the government of the day.

    The legislation for each ICE specifies that the entity must act independently in performing statutory functions and duties, and exercising statutory powers.

    Some ICEs, like the Law Commission and Productivity Commission, provide for the Minister to direct the composition of all or part of their work programme, but they retain independence as to their findings.  Where independence is only required for one or a few functions in a proposed agency, a statutorily independent function is likely to be more appropriate than an ICE.

    Most ICEs have investigative, adjudicative and/or regulatory functions, and many investigate the actions of other parts of government.  ICEs include the Independent Police Conduct Authority, the Commerce Commission, the Transport Accident Investigation Commission, Drug Free Sport New Zealand and the Financial Markets Authority.

    Although not subject to policy direction, ICEs may, like other Crown entities, be covered by ‘whole of government’ directions issued under section 107 of the Crown Entities Act 2004.  These generally relate to back office/support service matters and therefore do not conflict with the independent exercise of the entity’s specific statutory functions.

Commercial activities of government

Commercial or quasi-commercial activities can be undertaken in any entity form if they are consistent with or contribute to the entity’s objectives – for example the Translation Service, which provides both government and commercial translation, sits in the Department of Internal Affairs.  Where they are significant enough that they should not be an activity of a department or a statutory Crown entity, commercial activities of the government should be carried out by companies of one of the following types, all incorporated under the Companies Act 1993.

Organising commercial and policy functions(PDF, 188 KB) 

The 2 key considerations for which company form you choose are:

  • Does it have ‘commercial objectives’ or is it a public service that the government would like to see ‘operating commercially’?
  • Does government want to involve other owners in the company?

An agency has purely commercial objectives if its performance is measured primarily in financial terms; revenue is generated through sale of goods and services; it has a low public policy component and government would not step in if it failed.  Some functions, however, may operate commercially in terms of commercial disciplines but also have a high public policy component – for example delivering government-funded infrastructure or shared services.

Companies established by the Crown or Crown entities


Required Crown shareholding of voting shares


Governed by

State-owned enterprise



State Owned Enterprises Act 1986

Mixed ownership model (Schedule 5 of the Public Finance Act 1989)



Part 5A of the Public Finance Act 1989

Crown entity company



Crown Entities Act 2004 (usually own Act also)

PFA Schedule 4A



Part 5AAA of the Public Finance Act 1989 (which applies parts of the Crown Entities Act)

Crown entity subsidiaries

1 or more Crown entities have majority ownership


Crown Entities Act 2004

*10% limit on individual holdings by persons other than the Crown (subject to exemptions)

Companies owned by the Crown do not have a ‘responsible’ minister, but usually have two shareholding ministers who appoint the members of the Board and sometimes maintain a relationship with the Board chair.  The Treasury monitors the companies on behalf of the shareholding ministers.  The directors of the company have company directors’ duties under the Companies Act 1993 as well as the specific legislative duties relating to that company, which vary by company type. 

  • Commercial objectives

    For SOEs and mixed ownership model companies:

    • performance is measured primarily in financial terms
    • revenue is generated through the sale of goods and services
    • although the Crown has often established them for a public policy reason, there is little or no public policy component in their ongoing operation.

    State-owned enterprise (SOE)

    The principal objective for SOEs is to operate as a successful business. The Crown’s objective is to maximise the return to shareholders over time. SOEs are designed to sell into contestable markets (although some are monopolies). SOEs are 100% Crown-owned.

    An SOE is required to exhibit a sense of social responsibility by being a good employer and by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so.

    The State-Owned Enterprises Act (1986) recognises that an SOE may have non-commercial roles. Ministers must negotiate an agreement with the SOE to pay for any non-commercial goods or services that they wish an SOE to provide.

    Given the more flexible Crown company options that have been developed since the Act, it is unlikely that future SOEs will be created.

    Mixed ownership model company

    The mixed ownership model companies were all formerly SOEs, and became mixed ownership model companies as a result of the Government deciding to change their ownership arrangements.

    Mixed ownership model companies are listed on Schedule 5 of the Public Finance Act. This model allows for ownership by the Crown and minority shareholders. The Crown must maintain at least 51% control (that is, issued ordinary shares or voting securities) in a mixed-ownership model company and no person other than the Crown may have more than 10% voting rights, making it impossible for a single non-Crown shareholder to block a special resolution. Unlike Crown entity companies, PFA Schedule 4A companies and SOEs, mixed ownership model companies are publicly listed on a registered market.

  • Operating commercially

    Sometimes an agency with public policy objectives is designed to operate using commercial structures, where its commercial-type activities are too significant to retain in a public policy entity like a department or Crown agent.

    Crown entity companies or companies listed on Schedule 4A of the Public Finance Act are generally established by the Crown to further certain policy objectives while seeking to make a profit if feasible (for example, Crown Fibre Holdings Limited, Crown Research Institutes, Television New Zealand Ltd).

    Using a company to deliver outcomes for the Crown places the onus on the directors, who may provide specialist expertise, to ensure the company remains solvent and has adequate assets to take on any new obligations. The liabilities of a company are not usually guaranteed by the Crown.

    If the Crown wants a company to commit to a work programme with uncertain commercial revenues, it will typically need to provide some form of ongoing funding commitment, whether through loans, uncalled capital, or a contract for delivery of the desired outcomes.

    If the Crown wants to secure commercial or technical expertise without the arm’s-length constraints of creating a separate company, it may be simpler and more effective to set up a technical advisory board within or supported by the relevant department.

    Crown entity company

    Crown entity companies are one of the 5 categories of Crown entity defined in section 7 of the Crown Entities Act 2004. This Act applies in addition to the Companies Act, and contains comprehensive provisions about their establishment and governance, operation, reporting and financial obligations.

    Crown entity companies are wholly owned by the Crown (that is, shares may be held only by ministers). Any change of ownership of a Crown entity company requires legislation.

    Public Finance Act Schedule 4A company

    Schedule 4A companies are wholly or majority-owned by the Crown. Under this model, the level of Crown ownership may vary from over 50% up to 100%. This model is useful when the desired results might be best supported by joint ownership with one or more minority shareholders.

    Crown entity subsidiary

    Crown entity subsidiaries are companies established by one or more Crown entities, either to make commercial use of Crown entity assets or knowhow (for example, commercialising research) or to manage shared projects or services (for example District Health Boards established a range of multi-parent subsidiaries variously managing activities such as IT services, food supply, procurement and laundry).

    Crown entities make their own decision to establish a subsidiary under the Crown Entities Act, which stipulates that subsidiaries are not able to do anything that the parent entity would not be permitted to do.