Public Sector Enterprises: Features, Merits and Limitations of Government Companies

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Government Companies

A company in which 51% or more of its capital is held by central and/or state government is regarded as a Government Company as per the provisions of the Indian Companies Act,

  • Registered under Indian Companies Act, 1956

  • Follow all those rules and regulations as are applicable to any other registered company.

Features of Government Companies

  • Separate legal entity.

  • Acquire property in its own name.

  • Annual reports required to be presented in parliament.

  • Capital is wholly or partially provided by the government.

  • In case of partially owned company the capital is provided both by the government and private investors.

  • In such a case the central or state government must own at least 51% shares of the company.

  • Managed by the Board of Directors.

  • All the Directors or the majority of Directors are appointed by the government

  • Depending upon the extent of private participation.

  • Accounting and audit practices are more like those of private enterprises

  • Its auditors are Chartered Accountants appointed by the government.

  • Its employees are not civil servants.

  • Regulates its personnel policies according to its articles of associations.

Features of Government Companies

Features of Government Companies

Merits of Government Companies

Simple procedure of establishment

  • Easily formed, no need to get a bill passed by the parliament or state legislature.

  • Formed simply by following procedure laid down by the Companies Act.

Efficient working on Business lines

  • Run on business principles.

  • Fully independent in financial and administrative matters.

  • Board of Directors usually consists of some professionals and independent persons of repute.

Efficient management

Its management is cautious in carrying out its activities and ensures efficiency in managing the business

Healthy competition

  • Usually offer a healthy competition to private sector.

  • Ensure availability of goods and services at reasonable prices without compromising on the quality.

Limitations of Government Companies

Lack of initiative

  • Always have the fear of public accountability.

  • Lack initiative in taking right decisions at the right time.

  • Some directors may not take real interest in business for fear of public criticism.

Lack of business experience

Lack experience in managing the business organisation on professional lines they fail to achieve the required efficiency levels.

Change of policies and management

  • Generally, keep on changing with the change of government.

  • Frequent change leads to an unhealthy situation of the business enterprises.

Merits and Limitations of Government Companies

Merits and Limitations of Government Companies

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