Public Corporations | Meaning | Features | Merits & Demerits

What are Public Corporations?

Public Corporations are those institutions, which are established through separate Acts of the legislature. Therefore, they are also known as statutory corporations. The functions and powers of the corporations are clearly defined in the Acts through which they are established.

Public Corporation – Meaning, Features, Advantages, Disadvantages

This form of organization has its origin in the Great Britain. All the political parties in Britain accept this form of organization as an appropriate instrument for operating the state owned-undertakings.

Meaning and Definition of Corporations

Basically, a public corporation is an extended idea of the form of joint stock companies. A public corporation can be defined as a corporate body specially created by a legislative enactment with clearly defined powers and functions and enjoying considerable financial and administrative autonomy.

It is a creation of law and represents the most significant development in the field of management of state enterprises in the present century.

President Roosevelt gave a classical definition about Public Corporation. The president, in his message to the American Congress, observed, as follows

a corporation has the power of the Government but possessed with flexibility and initiative of a private enterprise.

Features or Characteristics of Public Corporation

The distinguishing features or characteristics of a statutory corporation can be summed up as follows:

1. Public Corporation is created by Law

A public corporation is created by a special legislative enactment, defining its objectives, powers, privileges and the form of management and its relationship with the Government.

2. Public Corporation is a Body Corporate

It is considered as a person in the contemplation of law. As such, it can acquire, hold and sell properties in its own name. It can sue or may be sued by others.

3. Public Corporation is wholly Owned by the State

The Government generally provides the capital of the public corporation. Other Governmental agencies and financial institutions can also contribute to the capital of the corporation. But individual investors are generally deprived from acquiring the shares of such corporations.

4. Public Corporation is Free from Government Controls

Public corporations are relatively free from political, parliamentary and departmental interference in the exercise of the powers vested in them under the Act.

5. Public Corporation enjoys Financial Autonomy

Public corporation not only enjoys administrative autonomy but also financial autonomy. Except for appropriation to provide capital or to cover the losses, the public corporations are usually financed independently. They prepare their own budgets and have the power to retain their earnings.

They can also borrow funds from the public or from the Government or other financial institutions. They are generally exempted from most of the regulatory and prohibitory statutes applicable to the expenditure of public funds.

6. Service Motive

The management of the corporation generally vests with the Board of Directors nominated by the Government. The directors may be Government officials or non-officials.

7. Management

A corporation is expected to behave commercially in the same manner as a private enterprise i.e. they are supposed to function efficiently on sound commercial principles. This does not mean that the corporations are expected to make profits.

They can make profit but not at the expense of the consumers. Thus, the public corporations primarily work for service, and profit is only a secondary consideration.

8. Public Accountability

Public accountability is another important feature of a public corporation. Though it enjoys complete autonomy in its administrative areas, it is accountable to the legislature. Its accounts are audited by the corporation and the Auditor General, and its annual report must be placed before the legislature.

9. Status of Staff

The employees of the corporation are not the servants of the Government and are not governed by Civil Service Rules. They are employed and paid out of the funds of the corporation.

The above-referred characteristics of the corporation reveal that it is a combination of public accountability and business management. It thus gives us the best of both public ownership and private enterprise.

Advantages of the Public Corporation

1. Effective Form of Organization

The public corporation is considered as an effective administrative instrument, which follows a middle course between the departmental organizations on the one side and privately owned and managed companies on the other side.

2. Public corporations are flexible in nature

The public corporation enjoys maximum autonomy in dealing with its affairs. It is almost free from the rigid and persistent control of the Government. Therefore, it can manage its affairs with initiative and flexibility.

3. Public corporations are free from Red Tapism

Since the Board of Directors is entrusted with powers to make important decision, quick decisions are possibly. It can also adjust its policies according to the changing business conditions and take prompt actions. Thus it is free from the evils of red tapism associated with the departmental organization.

4. Initiative

Being an autonomous body, it can experiment new lines and exercise initiative in the business affairs.

5. Service Motive

The evils generally associated with private enterprise such as profiteering, exploitation, illegitimate speculation are absolutely absent in the workings of the corporation. Its principal motive is service. Hence, the interests of the consumers are well protected.

6. Easy Financing

The public corporations can raise funds very easily from various sources. The investing public also readily subscribes to the loans floated by them as they consider the loan bonds more safe and sound.

7. No Exploitation of the Workers

The employees of the public corporations are generally well paid. Since their aim is not to maximize profits, they are in a position to pay higher wages and bonus to their employees. They are acting as model-employers.

8. Expertise Management

The Government can appoint even an outsider as the managing director of the corporation. By appointing business experts, the corporation can avail their valuable and expertise services. It can also appoint the representatives of the various interests like labour, consumers etc. Therefore, there is no possibility for exploitation of any section of the society.

9. Economies of Large Scale Operations

Public corporations are considered as a viable form of organization for launching enterprises on large scale. Besides, businesses, which do not produce enough profits during the initial stages can be organized only as corporations. Only this form of organization can do justice where public utilities and social services are involved.

Demerits of Public Corporation

Experience of the working of the public corporations have shown some of its defects and raised certain problems. The important defects are outlined below:

1. Public corporations has Limited Autonomy

The corporations, in practice, enjoy neither complete autonomy nor flexibility. Their autonomy is somewhat limited.

2. Political Interference

The Ministers and the politicians frequently interfere with the workings of the corporations and influence their policies. In many cases, politicians are appointed as the Chairman or Managing Directors of such corporations. They possess no sufficient experience in the business lines of the corporations. Thus, the management of the corporations is also very poor.

3. Public corporations are Evils of Big Business

As large undertakings are generally organized as public corporations, the evils of big business are bound to exist in all the activities of the corporations.

4. Labour Problems

Bridging the gulf between the labour and management really poses a difficult problem to the management which is already inefficient. In reality, the experiences are more bitter and painful in public corporations.

The workers generally demand abnormal increase in their wages even if the corporation is working at a loss. Increased wages will further increase the volume of losses, which are to be made good out of the Government funds. In India, we can hardly find one or two public corporations like BHEL, Neyveli Lignite Corporation, which are making profits.