A Government company is one in which not less than 51% of the paid-up share capital is held by the Central Government or a State Government or jointly by both.
A Government company may either by wholly owned by the Government, in which case 100% capital is provided by Government; or may be owned by the Government (holding minimum of 51% share-capital) and private concerns/individuals (holding maximum of 49% share capital).
In the latter case, a government company is known as a mixed ownership company. Hindustan Machine Tools, State Trading Corporation, Hindustan Steel Ltd., Hindustan Aeronautics etc. are some examples of Government companies.
Features of a Government Company
Following are the salient features of a Government company:
Registration Under the Companies Act
A Government company is formed through registration under the Companies Act, 1956; and is subject to the provisions of this Act, like any other company. However, the Central Government may direct that any of the provisions of the Companies Act shall not apply to a Government company or shall apply with certain modifications.
Executive Decision of Government
A Government company is created by an executive decision of the Government, without seeking the approval of the Parliament or the State Legislature.
Separate Legal Entity
A Government company is a legal entity separate from the Government. It can acquire property; can make contracts and can file suits, in its own name.
Whole or Majority Capital Provided by Government
The whole or majority (at least 51%) of the capital of a Government company is provided by the Government; but the revenues of the company are not deposited into the treasury.
Majority of Government Directors
Being in possession of a majority of share capital, the Government has authority to appoint majority of directors, on the Board of Directors of a government company.
A Government company has its own staff; except Government officials who are sent to it on deputation. Its employees are not governed by civil service rules.
Free from Procedural Controls
A Government company is free from budgetary, accounting and audit controls, applicable to Government undertakings.
Accountability to the Parliament/State Legislature
The Annual Report of a Government company is placed before the Parliament or the State Legislature.
Advantages of Government Company
Following are the advantages of a Government company:
A Government company can be easily formed under the Companies, Act, just by an executive decision of the government.
A government company can manage its affairs independently. It is relatively free from ministerial control and political interference, in its day-to-day functioning.
Through Government company device, the government can avail of the management skills, technical know-how and expertise of the private sector and foreign countries. For example, the Hindustan Steel Limited has obtained technical and financial assistance from the U.S.S.R., West Germany and the U.K. for its steel plants at Bhilai, Rourkela and Durgapur.
Easy to Alter
Objectives and powers of the Government Company can be changed by simply altering the Memorandum of Associating of the company, without seeking the approval of the Parliament.
The Government Company is subject to provisions of the Companies Act; which keeps the management of the company active, alert and disciplined.
A Government company can employ professionally qualified managers; because it has its own personnel policies.
The Annual Report of a Government company is presented to the Parliament/ State Legislature. These reports can be discussed and debated there.
Limitations of Government Company
Following are the limitations of Government Company:
Board of Directors Packed with ‘Yes-Men’
On the Board of Directors of a government company, there are Government appointed directors (Government being the major shareholder); who are ‘yes-men’ of the Government. They are unable to run the company, in a businesslike manner.
Autonomy Only in Name
Independent character of a Government company exists only in name. In reality, politicians, ministers, Government officials, interfere excessively in the day-to-day working of the government company.
A Fraud on Companies Act and Constitutions
A Government company is criticized as being a ‘fraud on the Companies Act and on the Constitution. This criticism is valid on the ground that the Government can exempt a Government company from application of several provisions of the Companies Act. Again, the Parliament is not taken into confidence, while creating a Government company.
Fear of Exposure
The annual report of the government company is placed before the Parliament/State Legislature. The working of the company is exposed to Press criticism: Therefore, management of the Government Company often gets demoralized and may not take initiative to come out with and implement something innovative.
Lack of Expertise in Deputationists
The key personnel of a Government company are often deputed from Government departments. These deputatiosnists generally lack expertise and commitment; leading to lower operational efficiency of the government company.
The Government Company works neither for the government nor for the public at large. It serves the personal interests of people who work in the company and who dictate policies of the company.