What is a Government Company?

A government company is a company registered under the Indian Companies Act in which not less than 51% of paid up share capital is held by the central government or any state government or partly by central government partly by one or more state governments. Private participation in capital and management is not allowed in this form of organization. It enjoys financial autonomy and has independent staffing system. Such a company does not have to worry about auditing, accounting and budgetary controls.

Reasons behind establishing the company form by the government are stated below:

Public interest.

Such companies are formed by the government in the interests of the country. Shares of existing private firms are taken by government if they don’t get profit or are in financial crisis or have become insolvent.

Industrial promotion.

Another reason for establishing such companies is to encourage industrial promotion. National Industries Development Corporation sand National Small Industries Corporation fall under this category.

Promotion of trade and commerce.

Some companies are formed in order to promote trade and commerce. For example, State Trading Corporation, Export Credit and Guarantee Corporation.

Lack of incentive.

In order to get some incentives, government establish such companies. Private businessmen do not find it suitable to establish firms due to heavy investment outlay, lack of profit in the initial years of its formation etc.

Distinction between Government and Non-government Companies:

Annual reports: In a central government company, annual reports and audit reports of government companies are laid or presented before Parliament and in a state government company, such reports are laid before the state legislature. Audit and annual reports are laid before the General Body, in a non-government company.

Provisions of Companies Act: It is in the hands of central government to exempt any provision of companies act from applying to a government company except provisions regarding audit. On the other hand, central government cannot exempt any provision of companies act from applying to a non-government company.

Auditor appointment: Government on the advice of Comptroller and Auditor General of India appoints the auditor of a government company. Whereas, it is the General Body that appoints the auditor of a non-government company.

Paid-up capital: Not less than 51% of paid up share capital is held by central or state government or jointly by central or one or more state governments. In order to form a government company, the total paid up capital owned by one or more governments should be 51% or more (in case of a government company). On the other hand, major share of paid up capital is held by private individual in case of non-government companies.