Statutory corporations are legal entities created by a particular act of parliament or state legislature or both. Public funds entirely support it. The legislature’s act also determines the authorities, goals, restrictions, and other aspects of it. Coming to the example of statutory companies, Air India, State Bank of India, Life Insurance Corporation of India, and others have adopted this format and gained a successful stature in the industry.
If you are interested to know more about what is a statutory company, dive into the blog for detailed information on the topic.
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What Is A Statutory Company: Characteristics
When talking about what is a statutory company, it is essential to understand the primary traits and characteristics of statutory corporations, which includes:
1. It is a corporate body
It is a legal entity created by law. The government-appointed board of directors oversees these corporations. A company can do business of any kind and has the authority to engage in contracts.
2. Owned by the State
For those who wonder what is a statutory company, it is a state-owned organization and by fully or partially contributing to the capital of such corporations, the state aids them. The state owns it outright.
3. Obliged to answer to the legislature
Moving forward in knowing about what is a statutory company – a statutory corporation must answer to the state assembly or the legislature, depending on which body established it. Parliament has no jurisdiction to meddle with how statutory corporations operate. It is limited to accessing corporate performance and policy issues.
4. Own Personnel Procedures
Despite the fact that the government owns and manages a firm, employees are not government servants. The government provides balanced or uniform pay and benefits to employees of different statutory firms. They are chosen, paid, and governed in accordance with the policies established by the company.
5. Financial Stability
A statutory corporation has financial independence or autonomy. The budget, accounting, and audit controls do not apply to it. It can even borrow money from domestic and foreign sources with the government’s prior approval. These are the characteristics that explain what is a statutory company.
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What is A Statutory Corporation: Its Advantages
The statutory corporation’s key benefits are:
- Initiative and flexibility: A statutory corporation’s operations and management are carried out independently, without interference from the government, and with its own initiative and flexibility.
- Administrative independence: A public corporation has the freedom and flexibility to conduct its business as usual.
- Decisions are made quickly since there is less paperwork and formalities to complete before making them in a public firm.
- Service-oriented goal: Parliament debates the public corporation’s operations. By doing this, the public interest is protected.
- Effective personnel: Public firms are allowed to establish their own rules and guidelines for hiring new employees and setting salaries. To ensure productive work from its personnel, it can offer better facilities and enticing conditions of service.
- Professional management: The statutory corporation’s board of directors is made up of business specialists and government-nominated members of diverse groups, including labor and consumers.
- Because these firms are wholly owned by the government, it is simple for them to raise the necessary funds by floating bonds at a low-interest rate. Since these bonds are secure, the general public is at ease purchasing them.
What is A Statutory Corporation and its demerits?
- Just on paper autonomy: The independence and adaptability of public corporations are merely for show. Practically, ministers, public servants, and political parties frequently obstruct these operations.
- Lack of initiative: Public enterprises are not subject to competition and are not driven by the desire to make a profit. As a result, the staff doesn’t take the initiative to boost earnings and cut losses.
- Rigid structure: The act defines the purposes and authority of public corporations, and they can only be changed by revising the act or the law. It takes a lot of time and effort to amend the act.
- The conflict between opposing interests: The government picks the board of directors, whose job it is to run enterprises. Due to a large number of members, their interests may likely conflict. This could generate problems for the corporation’s efficient operation.
- Unfair practices: The public corporation’s governing board is capable of engaging in unfair practices. It might overcharge in order to hide its inefficiency.
- Suitability: The public corporation is appropriate when the enterprises call for monopoly powers, special powers, or other authorities as specified by law, government grants on a regular basis, and a suitable balance between operational autonomy and public responsibility.
The government earns money in other ways besides taxes. The main objectives of a statutory corporation are to produce income and achieve commercial success. They are, therefore, very similar to other businesses. The way they are made and managed is what sets them apart.