question_answer

Give the meaning of Government Company. Explain three merits and three limitations of Government Company.

Answer:

Ans.     A Government Company is a company in which not less than 51% of the paid up share capital is held by the central government; or state government or jointly by both. Hindustan Insecticides Ltd., State Trading Corporation of India, Hindustan Cables Ltd. etc are some of the examples.

Features

1. It is registered or incorporated under Companies Act.

2. It has a separate legal entity.

3. Management is regulated by the provision of Companies Act.

4. Employees are recruited and appointed as per the rules and regulations contained in Memorandum and Articles of Association.

5. The Government Company obtains its funds from government shareholdings and other private shareholdings. It can also raise funds from capital market.

Merits

1. It can be easily formed as per the provision of Companies Act. Only an executive decision of government is required.

2. It enjoys autonomy in management decisions and flexibility in day to day working.

3. It can appoint professional managers on high salaries.

Limitations

1. It suffers from interference from government officials, ministers and politicians.

2. It evades constitutional responsibility, which a company financed by the government should have, as it is not directly answerable to Parliament.

3. The board usually consists of the politicians and civil servants who are interested more in pleasing their political bosses than m efficient operation of the company.