Merits and Limitations of a Government Company?

The merits and limitations of a government company are:

Merits of a government company:

Easy to form: Such a company can be easily formed by the government. Whenever, the government wants to take up a new activity, it can establish a new company. No bill is required to be passed by the legislature for a government company to get formed.

Easy to bring changes in constitution: By making amendments in Articles, it is easy to bring changes in the constitution. As government controls such companies it has the right to amend the Articles and pass resolution in the meeting whenever required.

Facilitates private participation: As per the wants of the government, it can facilitate private participation in the equity of public enterprises by selling a part of equity of a company to the general public.

Easy to transfer ownership: Public enterprise can be disposed off easily with the help of this form. By selling the shares to private party, once the price at which the shares are to be transferred is decided, transfer of ownership becomes much easy.

More autonomy: Government company has got all the advantages that are found in the public corporation form. It has its own charter, autonomy of operations, freedom in personnel matters, adequate finance etc.

Flexibility in operations: Such a company can take quick decisions and prompt actions on any matter affecting its business because evils of red-tapism and bureaucracy are not found in such companies. Employees of the government company are not the civil servants.

Limitations of Government Company:

Evades constitutional responsibility: Such a company evades constitutional responsibility because without getting specific approval of Parliament, a government company can be formed. Reasons for setting up a government company or its constitution are not discussed by the Parliament.

Fear of public accountability: Directors and chief executives of a government never take initiative in entering new areas of activities because they always have the fear of public accountability.

Public criticism: Annual reports of the concerned ministry contain the performance of a government company. These reports are either placed before the parliament or state legislature. These annual reports are regarded as public documents that expose the enterprise in front of the public.

Government interference: The autonomy of a company may get affected as the government has the right to make changes or revise the Memorandum and Articles of a company whenever required. The government can alter the constitution of a government company without any public discussion.

Lack of professional management: Its the government who mostly appoints the directors of a government company. Because of this reason, these enterprises fail to achieve business efficiency found in similar enterprises in the private sector.

Such a form of organization is best suited to industrial and commercial undertakings.

Tags: B.Com

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