As a result, a suitable collaboration may be formed for technology and finances. 2. It can hold property in its own name. Limited freedom – The provisions of the Companies Act does not have much relevance since the Government is the only shareholder in some of the Companies. It is a corporate body has the capacity of acting in its own name is financially independent with a clear control over a specified area or a particular type of commercial activity. However, in actual practice, this autonomy does not exist because the management pattern of a Government company may be influenced by the Government through the Board of Directors as it is a majority shareholder. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. It is done by professional chartered accountants as in other commercial establishments. The initial share capital is provided by the Government. For designing its management process, the company is free to do so. Public employee unions represent workers. It is allowed to raise funds from share market. 3. Public or Statutory Corporations are the types of public sector formed by the parliament’s special action or state/central legislatures. 1. Accordingly, the public sector’s mandate has broadened. No Interference – These are autonomous bodies. Hindustan Machine Tools, Hindustan Steel and Hindustan Cables were set on this pattern. However, the Act provides for a few issues that require the prior approval of the particular ministry. Its name is notified in the official gazette of the Central or State Government. It can hold assets in its own name and can sue others and can be sued by others in a court of law. 9. The company can enter into a contract and can acquire property in its own name. Delayed decisions – Due to the practice of appointing advisors to the Corporation Board by the government the freedom of the corporation in entering into contracts and other decisions is curbed. 1. The following are major statutory corporations: i. 6. Corruption – In public dealings there is bound to be corruption. A statutory corporation has efficient management because it is free to choose all its managerial personnel except those who are appointed by the Government. In many cases, the Directors of a Government company are selected not on the basis of competence but on other criteria. Separate Legal Entity – It has a separate legal entity. It can sue and be sued by others. Thus, in many cases, departmental undertakings fail to achieve their objectives effectively. Insensitive – These enterprises do not provide adequate services to consumer as they are usually insensitive to their needs. It can hold property in its own name. As a result, decisions are made in accordance with the needs of the business environment. 1. This results in economies of scale because of spread of overheads on a large volume which leads to lower per unit cost. Flexibility of Operations – There is considerable flexibility in the operations of a Government company. Where utmost secrecy is required, for example, defence production, atomic energy, etc. This results in inefficient management. Implementation of anti-crime initiatives - the crime situation … Law Enforcement 9. Profit earned by such corporation is used for providing services to the society. A few of examples of these undertakings are railways, post and telegraph department etc. 2. Further, the accounts of Government companies are not subject to audit by Comptroller and Auditor General of India. Therefore, it is in a better position to work according to the prescriptions set by the Government. types of Public Sector organizations Public sector organizations may exist at any of four levels: International (multistate entities or partnerships). Merits of a government company are as follows: 1. 1.1 The Public Sector comprises all organisations operated directly or indirectly by the government or local services. ii. Organizations that are not part of the public sector are either a part of the private sector or voluntary sector. conducted in different type of organisations, those two areas are the profit oriented organisations to the non-profit oriented organisations the profit that is profit oriented organisations is focused by a name on making money. The new persons try to run company according to their own will. Audit – The accounts of these undertakings are audited by the Comptroller and Auditor General of India (CAG). Autonomous Organisations – These have their own policies and procedures within the powers and duties assigned to them under Act. Examples of Government companies are- Indian Oil Corporation Limited, Bharat Sanchar Nigam Limited, Gas Authority of India Limited, etc. The different types of public sector enterprises are as follows: 1.Departmental undertakings : This is the oldest and most traditional form of organising public enterprises. Public sector organizations are those organizations that are owned, controlled and financed by the Government of the country. Merits of a departmental undertaking are as follows: Formation of a departmental undertaking is quite easy because it is set up by an administrative decision of the Government. Statutory Discipline – The management of a Government company is governed by statutory provisions of the Companies Act. 8. Autonomy in Operations – They are free to conduct their activities. Evades constitutional responsibility – It evades constitutional responsibility, which a company financed by the government should have. Red tapism – Since no action can be taken unless it goes through the proper channels of authority there working propagates red tapism in day-to-day operations. Public accountability – They are subject to high degree of public accountability. Therefore, the top management of Government companies becomes overcautious and avoids taking risky decisions even though they may be quite relevant to the changing business environment. Limited scope – As the bureaucrat’s over­cautious and conservative approval does not allow them to take risky ventures these enterprises are unable to take advantage of business opportunities. Protection of Public Interest – A Government company often works in a competitive environment. These have a financial autonomy and prepare their own budgets. As a result, there is unnecessary delay in work performance. of Minority Private Shareholders – The private shareholders are in minority. There is no need for registration and completion of legal formalities. 4. Where the Government wishes to undertake a business having wider importance, for example, State Trading Corporation of India Limited. 5. A statutory corporation has some special privileges in terms of its working. Government Companies. Political parties in power keep on changing, resulting in lack of continuity as the officers are changed with these changes. Before publishing your Articles on this site, please read the following pages: 1. Effective Control – Parliament can exercise effective control over them as the control is centralised in the hands of government. When the activities are of national importance with a centralised control. Accounting and Audit – Accounting and audit functions of a departmental undertaking are undertaken on the same pattern which is relevant to other Government departments. Easy Financing – Their financial needs are met by the Government and these can also go to capital market as and when they like. Body Corporate – These have a separate legal entity. Lack of Competition – This has led to carelessness and lethargy in their activities. The fallacy of the ‘public sector.’. It can enter into contracts with third parties. NYUJL & Liberty, 11, 371. They can improve operational efficiency. The service conditions are also given in the specific Acts under which they are set up. (i) Wholly owned government companies where entire capital is held by the government. Postal Service 11. vi. These are free from unnecessary and undesirable government interference and regulations. Part of Government – A departmental undertaking is a part of the government and is organised as a unit of the concerned ministry. Finance – The government company obtains its funds from government shareholdings and other private shareholders. There is always a fear of loss due to slackness. The initial capital is provided by the concerned Government. 2. (d) Joint Enterprise. 3. Infrastructure 8. Registration – It is registered like any other Joint-Stock Company with the Registrar of Companies. Political interference – In all the major decisions or where huge funds are involved the Government and political interference has always been there. Formation – These form a part of government. Public sector institutions operate within a complex legislative framework. Ownership – Minimum 51% of their paid-up capital is in the name of Central Government or State Government or partly in the name of Central Government and partly in the name of a State Government. As a result, the opposition and the media may blow the negative aspects of the working of a company out of proportion. Management – It is managed by a Board of Directors who are appointed by shareholders or nominated by the Government. Most of the Governments have deficit financing leaving much lower scope for allocating funds to departmental undertakings. The tax burden on public is reduced. It can sue or be sued and can enter into contracts under its own name. iii. Therefore, these resources are allocated based on actual needs, and budgetary control is exercised to ensure that the money is used for the same purpose for which it is allocated. Web. Limitations or demerits of a Government company are as follows: A Government company is exempt from various provisions of the Companies Act and, therefore, lacks accountability. Source of revenue – They serve as a source of income for the Government as the revenue earned by the enterprise goes directly to the treasury. Government spending types Example Social protection Personal social services Health Transport Education Defence Industry Agriculture, and Employment Housing and environment Public order and safety Debt interest Recreation, culture and religion Public sector pensions Public sector organizations can be found throughout the world and provide a wide range of services. Government does not interfere in day to day working of these corporations. The private sector is composed of the economic sectors that are intended to earn a profit for the owners of the enterprise. Operational freedom – They are free from undesirable government regulation and control of government and enjoy independence in their functioning and a high degree of operational flexibility. Separate legal entity – The company can file a suit in a court of law against any third party and be sued. Once the coverage of the public sector is clearly defined, there is a need to classify public sector entities as either engaging in market or non-market production, i.e., as being in the public corporations sector or general government sector respectively. Financial Autonomy – The company enjoys financial autonomy. 4. Departmental Undertakings 2. 3. A statutory corporation is a separate legal entity with perpetual succession and a common seal. 4. It offers the twin benefits, as it has power of the government and considerable amount of operating flexibility of private enterprises. These are autonomous and independent in their functioning. Some of the drawbacks of departmental undertakings are as below: 1. Owned by government – This type of organisation is wholly owned by the state and the government has the ultimate financial responsibility and has the power to appropriate its profits or to bear the losses, if any. It is managed in the same way as a Government department is managed. They play a crucial role in the economic development of the nation. There can’t be any misutilisation of funds. 2. national, provincial and local, and how they interact with one another. "The Center for Responsive Politics." Examples of organizations in the public sector include: 1. Public sector reforms are where the government tries to change the way it operates. 3. 3. There are certain limitations or demerits of a departmental undertaking which are as follows: A departmental undertaking has no autonomy. Prompt Decision-making – In a Government company, there is ample scope for prompt decision-making because the usual process of decision-making in Government, which is quite slow because of bureaucratic structure, is not followed here. Promote healthy business practices – These companies curb unhealthy business practices by providing goods and services at reasonable prices. Facilitates economic growth – Since a statutory corporation has the power of the government, combined with the initiative of private enterprises it serves as a valuable instrument for economic development. These can purchase property in their own name and enter into contracts with third parties, and the contracts will be legally bound. The public sector includes public companies, entities and public enterprises and services.An excellent example of the public sector … Separate Legal Entity – It has a separate legal entity. 7. (2016, June & july). Appointments of Employees – Its employees are appointed according to its own rules and regulations as contained in its Memorandum and Articles of Association which contain objective and internal rules and regulations of company respectively. 11 June 2017. Autonomous entity – Except for a few issues/matters which require prior approval of a particular ministry as per the Act, these are autonomous organisations and frame their own policies and procedures within the powers assigned to them by the Act. The government companies suffer from some limitations as discussed below: i. The government is the majority shareholder in these enterprises and it exercises full control over paid up capital of the company. Examples of these undertakings are railways, post and telegraph department. Further, a Government company may also be formed as a joint venture in which the Government holds majority of shares while the other part of share capital is subscribed by one or more than one joint venture partners. When some kind of monopoly is required in performing the activities. While Commerce relates to financial transportation insuring & allied activities. A Departmental Undertaking is a public sector enterprise which is run as a part of a government department and under the direction of the Minister concerned. 2. 5. It can be a wholly owned Government Company where all shares are held by the Government. 4. Appointments of Employees – These have their own rules regarding appointment and fixing of the remunerations of employees. Where the Government acquires a private sector company because of its mismanagement to protect the interests of the minority shareholders. There is statutory control on a statutory corporation though it is not direct because of autonomy of the corporation. The important features of the government companies are stated below: i. It can sue and can be sued. When auditing in the public sector, it is important to have an understanding of the three different spheres of government, i.e. 4. Political Interference – Politicians have their own benefit in mind wherever huge funds are involved. The disagreement with the professionals further delays decision making. This leads to wide publicity of the working of these companies. A Hayekian Case Against Anarcho-Capitalism: Of Street Grids, Lighthouses, and Aid to the Destitute. 3. When specialised activities are required to be performed with considerable flexibility and autonomy. Humanities Press 1982, New York University Press 1998. The government is the majority shareholder in these enterprises and it exercises full control over paid up capital of the company. 5. Corruption – Rampant corruption exists is where dealing with public is involved. Unionised public-sector workers are also far more likely to have secure working conditions than private-sector and non-unionised workers. Thus, the economic development is ensured. Statutory Corporations are created by a special Act of Parliament or State Legislature. 5. The activities performed by these departments are an essential part of the functioning of the government because the Government functions through these departments. 6. Trade means a process of buying &selling of commodities. iii. 5. These can sue and be sued. Its shares are purchased in the name of President of India. Staff members are appointed by the company and their service conditions are decided by the company. Barlow, J. Roehrich, J.K. and Wright, S. (2010). A statutory corporation is fully owned by the Central Government or State Government. "The Moral Status of Relations to the State", chapter 24 of The Ethics of Liberty. 6. 8. Collaboration – It is the only form of public sector enterprises which may form a collaboration with another party, either foreign or Indian. Has led to carelessness and lethargy in their activities audit procedures enjoys autonomy the flexibility of the economic sectors are. 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