Government Company | Meaning | Features | Advantages & Disadvantages

What is Government Company?

The use of the commercial company as a form of public enterprise is very popular in almost all the countries throughout the world. This form of organization is free from the evils of red-tapism and bureaucracy and has definite use in the case of genuine joint ventures of public and private interests. These enterprises are established under the provisions of the Companies Act. A Government company may be wholly owned by the state or both by the private and the Government.

Government Company

Government Company – Meaning, Features, Advantages, Disadvantages

According to sec. 617 of the Indian Companies Act, a Government company means

any company in which not less than 51% of the paidup share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined.

Thus a Government company is an enterprise wherein the Government is a dominant shareholder having the bulk of controlling interests. The rules and regulation laid down in the Companies Act are equally applicable to Government companies. However, the Act has laid down certain specific rules, which are meant only for Government companies.

Features of a Government Company

1. A Government company, just like other companies in the private sector, is registered and incorporated under the Companies Act.

2. The Government holds the whole or at least 51% of the total share capital.

3. All or majority of the directors are nominated by the Government.

4. Public can also subscribe to the share capital of such companies, if offered to them.

5. It is created by an executive decision of the Government and so specific approval of the Parliament is not necessary.

6. It is an autonomous unit with full discretion in the normal administration of the affairs of the undertakings.

7. The employees, except the officers deputed from the Government, are not civil servants.

8. However, the company is subject to the ministerial control. The Comptroller and Auditor-General of India appoints or re-appoints its auditor. The annual reports of company must be placed before both the Houses of the Parliament.

Merits of a Government Company

1. The greatest merit of this form of organization lies in its flexibility in running the business of the enterprise. It can follow a flexible policy to the changing business conditions.

2. The formation of a Government company is comparatively easy. No prior approval of the Parliament is required.

3. It enjoys greater authority and is free from the protracted and time-consuming regulations of the Government.

4. It enables the Government to procure and accommodate managerial skill, technical know-how of the private enterprise or foreign countries by conveniently collaborating with them.

5. The workings of the company are open to public criticism in the Parliament. Hence, the management cannot avoid its responsibility.

Demerits of a Government Company

1. The Government company, in reality, does not enjoy any autonomy in its dealing. The interference of the Ministers has become very frequent.

2. The law regulating the limited companies has become a mere fiction because most of the functions that normally vest in the shareholders and in the management are reserved to the Government.

3. The directors, being the servants of Government, do not have necessary skill and ability to run the business on sound business lines.

4. The Government companies are not answerable to the Parliament. Even the Auditor General has no right to audit its accounts. Hence, it evades the constitutional responsibility, which a state enterprise should have to the Parliament.

5. The control exercised by the Government is more wide and the powers of the Board of Directors are limited and subject to the approval of the concerned Ministry. Hence, they cannot effect major policy changes on their own accord. The defects of departmental organization are also, thus, bound to appear.

When is a Government Company Suitable?

The Governments all over the world also favour this type of organization for varied reasons. In our country also, majority of the state enterprises are organized in this fashion. A company form of organization is found more suitable in the following circumstances:

1. When the Government wants to take over an existing enterprise in an emergency.

2. When the state wants to launch an undertaking in collaboration with private enterprises or with foreign countries.

3. When there is a need for flexibility in the operations of the enterprises.

4. When the Government wishes to start the enterprise with a view to transferring it eventually to the private management.