What is a Statutory Corporation? Explain its features, merits and limitations.
A statutory corporation is an autonomous corporate body created by a Special Act of Parliament or state legislature with defined functions, powers, duties, immunities etc. It is also called ‘public corporation’. State helps the statutory corporations by subscribing the full capital and it is fully owned by the state. Government nominates the Board of Directors and they manage and operate such corporations. It enjoys financial autonomy and is answerable to legislature only which creates it.
Features of Statutory Corporations:
It is a corporate body: It is an artificial person created by law and is a legal entity. Such corporations are managed by Board of Directors constituted by Government. A corporation has a right to enter into contracts and can undertake any kind of business under its own name.
Owned by state: State provides help to such corporations by subscribing the capital fully or wholly. It is fully owned by the state.
Answerable to legislature: A statutory corporation is answerable either to Parliament Legislature or State Assembly whosoever creates it. Parliament has no right to interfere in the working of statutory corporations. It can only discuss policy matters and overall performance of corporation.
Own staffing system: Employees are not government servants, even though government owns and manages a corporation. Employees of various corporations receive balanced or uniform pay and benefits by the government. They are recruited, remunerated and governed as per the rules laid down by the corporation.
Financial independence: A statutory corporation enjoys financial autonomy or independence. It is not subject to the budget, accounting and audit controls. After getting the prior permission from the government, it can even borrow money within and outside the country.
Merits of Statutory Corporations:
Initiative and flexibility: A statutory corporation manages and operates its affairs independently, without any government’s interference, with its own initiative and flexibility.
Avoids red-tapism: Red-tapsim and bureaucracy are such evils that hamper the working of organizations. Such evils are not found in statutory corporations. It can take quick decisions and prompt actions on any matter that affects its business.
Easy to raise capital: As such corporations are fully owned by government, they can easily raise required capital by floating bonds at low rate of interest. Since these bonds are safe, public also feels comfortable in subscribing such bonds.
Works with service motive: They work with the aim to render services and profit earning is not the first priority. The profits that such corporations earn are utilized for the benefit of consumers and community. Defects of exploitation, speculation and profiteering etc are avoided in case of statutory corporations.
Secures working efficiency: Such corporations provide better amenities and more attractive terms of service to its employees which helps in reducing the labour problems. It, thus, helps in securing greater working efficiency.
Limitations of Statutory Corporations:
Less autonomy: In practice, autonomy of statutory corporations are in a closed and systematic way controlled by the government even in matters which allow them to enjoy freedom. FCI and Electricity Boards are statutory corporations important to government and public both. But central and state governments curtail their freedom which as per the Acts they are entitled to.
Inflexibility: A corporation is said to be inflexible and insensitive to changing situations because an amendment in the Act of legislature is required, if any change in objects and powers of corporation has to be made.
Clash amongst divergent interests: Government appoints the Board of Directors and their work is to manage and operate corporations. As there are many members, it is quite possible that their interests may clash. Because of this reason, the smooth functioning of corporation may be hampered.
Ignores commercial principles: Statutory corporations may ignore the commercial principles in their working because they do not work to earn profit and do not have any fear of loss. Without these principles, inefficiency and losses can take place in a corporation.
Excessive public accountability: Such corporations work with the motive to render services and not profit motive. This public accountability of corporation act as a stumbling block in operational efficiency of the enterprise.