Management Notes

Reference Notes for Management

State the merits of a Government Company.

State the merits of a Government Company.

An organization or a company in which at least 51% of the paid up capital is owned by the government is a government company.

  • Ease of formation

A separate ad of the parliament is not required for setting up a government company, as it is established under the Indian Companies Act, 1956. Having its own legal status, it is able to buy, sell, and own property. The government company can go to court and be sued. The government company’s main objective is to provide service and to earn profits.

  • Easy to raise Finance

In addition to government funding, government companies can raise funds from private investors, financial institutions, and other companies. This allows them to raise capital in a way that suits their needs.

  • Flexibility

In terms of functioning, it is flexible and autonomous. The company has a commercial outlook and can make decisions based on the changing needs of the company.

  • Independent status

A government company has its own legal entity separate from the government.

  • Autonomy

Government companies have full autonomy in conducting their business operations and in making all business decisions. The company has the ability to make any decision which is beneficial to the company’s growth.

  • Internal Autonomy

It is possible for a government company to manage its affairs independently. In its day-to-day functioning, it is relatively devoid of ministerial control and political interference.

  • Private Participation

The government may make use of private sector expertise and management skills through government companies. The Indian steel company, Hindustan Steel Limited, has received technical and financial assistance for its steel plants at Bhilai, Rourkela, and Durgapur from the USSR, West Germany and the UK.

  • Easy to Alter

The objectives and powers of the Government Company can be modified by simply amending its Memorandum of Association, without requiring Parliamentary approval.

  • Discipline

Government companies are governed by provisions of the Companies Act, which keeps the management of the company active, alert, and disciplined.

  • Professional Management

A government company has its own personnel policies, so it can employ professionally qualified managers.

  • Public Accountability

A Government company’s Annual Report is presented to The State Legislature or Parliament. Discussions and debates about these reports can therefore take place.

What is a Holding Company? – Advantages and Disadvantages | Accounting


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