Government Company: Definition, Features, Advantages, Disadvantages of Government Companies

Government Companies Definition and FeaturesA government company is a company in which the Government or State Government holds 51% or more of the paid-up capital. Government Company, also called Public Enterprise, State Enterprise. It works as other companies registered under the Companies Act.

Features of Government Companies

The main features of Government companies are as follows:

  • It is registered under the Companies Act.
  • It has a separate legal entity. It can sue and be sued and can acquire property in its name.
  • The annual reports of the government companies are required to be presented in parliament.
  • The capital is wholly or partially provided by the government. In the case of a partially owned company, the capital is provided both by the government and private investors. But in such a case, the central or state government must own at least 51% shares of the company.
  • It is 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.
  • Its accounting and audit practic s are more like those of private enterprises, and its auditors are Chartered Accountants appointed by the government.
  • Its employees are not civil servants. It regulates its personnel policies according to its articles of associations.

Advantages of Government Companies

The merits of government company form of organizing a public enterprise are as follows:

  1. Simple Procedure of Establishment

A government company, as compared to other public enterprises, can be easily formed as there is no need to get a bill passed by the parliament or state legislature.

It can be formed simply by following the procedure laid down by the Companies Act.

  1. Efficient Working on Business Lines

The government company can be run on business principles. It is fully independent in financial and administrative matters. Its Board of Directors usually consists of some professionals and independent persons of repute.

  1. Efficient Management

As the Annual Report of the government, the company is placed before both the house of parliament for discussion; its management is cautious in carrying out its activities and ensures efficiency in managing the business.

  1. Healthy Competition

These companies usually offer healthy competition to the private sector and, thus, ensure the availability of goods and services at reasonable prices without compromising the quality.

Disadvantages / Limitations of Government Companies

The government companies suffer from the following limitations:

  1. Lack of Initiative

The management of government companies always has a fear of public accountability. As a result, they lack initiative in taking the right decisions at the right time.

Moreover, some directors may not take a real interest in the business for fear of public criticism.

  1. Lack of Business Experience

In practice, the management of the companies is generally put into the hands of administrative service officers who often lack experience in managing the business organization on professional lines.

So, in most cases, they fail to achieve the required efficiency levels.

  1. Change in Policies and Management

The policies and management of these companies generally keep on changing with the change of government. Frequent change of rules, policies, and procedures leads to an unhealthy situation of business enterprises.

Arguments for Public Enterprise

The state is regarded most desirable due to the following arguments

  1. Prevention of Monopoly

This is a strong argument in favor of nationalization that st abolishes the economic powers from the few mo monopolists. It thus enables the govt to take steps for the welfare of the

  1. Economic Prosperity

The government’s position to modernize the industry, communications, and transport for the best interest of the nation. So the rapid growth of Industries causes economic prosperity in the country.

  1. Maximum Utilization of Resources

All the oil, gases, minerals, and other national resources can be utilized maximum to achieve economic development.

  1. Development of Backward Area

All the regions of the country developed equally under nationalization. Regional and social factors a reconsidered preferential while the government decides regarding the location of a new plant.

  1. Improvement of Working Conditions

The government improves the working conditions of the workers in nationalized industries. The state is interested in providing just rates of pay, the security of services, and other fringe benefits.

So a peaceful atmosphere can be maintained in the industrial field.

  1. Protection of Public Interest

Unhealthy competition among the industrialists injures the interest of the public, which can be measured and mitigated by state ownership.

  1. Economy

It enables the Govt to achieve the economy in different fie Ids due to the coordination in numerous departments.

  1. Promotion of Defense service

Nationalization is desired to strengthen the specific industries for the defense of the country.

  1. Centralized Management

Centralized management is possible due to coordination in the nationalized industry. It thus enables the state to solve the problems of organization, capital, labor operation, and marketing.

  1. High Standard of Living

It tends to increase the economic activities of the country, which greatly influences the standard of living of the people.

  1. Use of Surplus Profit

Under state ownership, the profit of the enterprises would go to the public treasury, which can be employed for the welfare of the country.

  1. Employment Generation

Industries are nationalized to create new posts for jobless persons under a programmed.

  1. Uniformity in Services

As all the public utility services i.e., water, railway, post office, communications, electricity, are connected by the state, so uniformity in the quality of services can be maintained.

  1. Skilled Services

The government may hire the services of outstandingly talented and skilled persons due to its largest resources. So all the undeveloped resources of nationalized industries can be utilized for productive purposes by skilled services.

Arguments against Public Enterprise

The nationalization of the industry is not considered desirable on the following grounds:-

  1. Costly Management

The management of the nationalized industry is complicated and unwieldy. There are numerous departments and paid persons i.e., directorate, regional office conduct its management.

  1. Lack of decision making

All the necessary matters are decided by various officials and committees. In the case of conflicting views, a quick decision cannot be made for urgent matters which are dangerous in business.

  1. Lack of Efficiency

Nationalized industries are managed by salaried persons who are generally found less efficient as compared with privately owned concerns. Th ere is also a lack of flexibility and adaptability where is an asset of private ownership.

  1. Bureaucracy

There is an extensive and rigid procedure of the state machinery by which the event is dealt with. Such stipulated rules have made the process of work every complicated, which results in delay and loss of initiative.

  1. Absence of profit motive

The salaried persons are not concerned with profit. Therefore, nationalize d undertaking hardly run successfully due to a lack of personal interest.

  1. Chances of Loss

The loss of nationalized enterprises is regarded as the loss of the nation. So the structure of a nationalized economy will greatly be affected by the failure of such a scheme.

  1. Limited Investment

Investors hesitate to invest a large sum of money due to the risk of nationalization. Therefore, the volume of investment remains limited in the private sector.

  1. Undue Interferences

Nationalized enterprises are undesirably interfered with by political parties. Such undue activities are handicapped in the progress of a sound business.

  1. Objectionable to Public

The public generally criticizes the giant policy of nationalization. So the government may not be in a position to initiate new schemes freely.

  1. Loose Supervision

Skilled and efficient businessmen are replaced after nationalization. The charge usually is taken over by the officials who are incompetent and inexperienced to run the industries. So the production volume is affected due to loose supervision.

  1. Uncertain Situation

The giant policy of state ownership does not remain forever. It may be changed by the change government, which results in confusion and hesitation.

  1. Chances of Fraud

The controlling authority of the state enterprises may play discrimination and favoritism. They may appoint dishonest and corrupt persons.

Therefore fraud and manipulations may occur in the transaction, which causes exploitation of the public.

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