Government Companies

means the majority of share capital will be held by the government. It may by Central Govt,
State Govt or jointly by them. Rest 49% shares may be issued for public subscription or
retained by the Government.

Characteristics

1) Registered under Indian Companies Act

A government company is a company which is registered under Indian Companies
Act 1956. It should be registered as private or public ltd companies.

2) Majority shares held by the govt

In a govt company majority of shares ie, 51% should be held by the government. So
the management of these companies is under the control of the government.

3) Its own MOA and AOA

The government companies have to be registered under the Indian Companies Act. So
memorandum of association and articles of association has to be drafted.

4) Separate legal existence

A government company has its own legal existence. It can sue case and be sued in the
court of law by its own name.

5) Directors are appointed by the govt

Government is the major share holder in a government company. So the directors
should be appointed by the government.

6) Free from budgeting, auditing& accounting

A government company is free from budgeting, auditing & accounting applicable to
other government departments.

Advantages

1) Public participation
 In a government company, government is the majority share holder. Rest of the shares
should be issued to the public. Thus the public can subscribe the shares and there by
participate in the affairs of the company.

2) Easy formation
A government company can be formed easily. Because there is no need of passing
any act in the Parliament.

3) Flexibility in operation
There is a freedom and flexibility in the management of government companies.
Companies can organise there working according to necessity of the situation.

4) Enjoys better credit facilities

Government companies are owned by the government. So there may be no difficulties
in getting credit facilities.

5) Less govt control

The government may not interfere in the day to day affairs of the company. The
directors have the freedom to take the decisions.

6) Attracts foreign capital

The minority shares of the public company may be listed in the recognized stock exchanges.
It will attracts the foreign capital

7) Healthy competition
Government companies provide healthy competition to the private sector. Private
businessmen will have to be careful in fixing their prices.

8) Financial autonomy
These companies are dependent on government only for their initial capital. They can
plan their own capital structure. The companies can earn profit and these profits can be used
for further investments.

Disadvantages

1) Political interference
 There is a lot of political interference in government companies. Every government
tries to nominate directors from its own political party and the companies are run on political
considerations.

2) Minority interest may be overlooked

The government is the majority share holder in the company. So the decisions are
taken according to the wish of the government and the minority interest may not be
considered.

3) Directors and staffs may not have interest

Directors and staffs will not be the member of the company. They will get fixed salary
every month. So they may not have interest in the company.

4) There is no autonomy
Theoretically, these companies are free from government control but in reality they are
dependent on various government departments. They have to get permissions from
government departments regarding loans, capital and managerial appointments.

Examples

 Hindustan Machine Tools Ltd

 Indian Oil Corporation Ltd

 Fertilizers And Chemicals Travancore Ltd