Why is the government company form of organisation preferred to other types in the public sector?


By Harshvardhan, the Subject Matter Expert at Edumarz

Solution: A government company is established under The Companies Act, 2013 and is registered and governed by the provisions of The Act. These are established for purely business purposes and in true spirit compete with companies in the private sector.

The government company form of organisation preferred to other types in the public sector because of the following reasons:-

  1. A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in Parliament is not required.
  2. It has a separate legal entity, apart from the government.
  3. It enjoys autonomy in all management decisions and takes actions according to business prudence.
  4. Government companies by providing goods and services at reasonable prices are able to control the market and curb unhealthy business practices.
  5. The company can file a suit in a court of law against any third party and be sued 
  6. The company can enter into a contract and can acquire property in its own name
  7. The management of the company is regulated by the provisions of the Companies Act, like any other public limited company
  8. The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company. The Memorandum and Articles of Association are the main documents of the company, containing the eobjects of the company and its rules and regulations
  9. These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the Central Government and the Annual Report is to be presented in the Parliament or the State Legislature
  10. The government company obtains its funds from government shareholdings and other private shareholders. It is also permitted to raise funds from the capital market.

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