Complete information on Public Corporation, its characteristics and problems

According to Ernest Davies, “the public corporation is a corporate body created by public authority, with defined powers and functions, and financially independent. It is administered by a Board appointed by public authority, to which it is answerable. Its capital structure and finan­cial operation are similar to those of the public company, but its stock­holders retain no equity interests, are deprived of voting rights and power of appointment of the Broad.”


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In the words of Halsbury, a corporation aggregate is a “collection, of individuals united into one body under a special denomination, having perpetual succession under an artificial form, and vested by the policy of the law with the capacity of acting in several respects . as an individual,, particularly of taking and granting property, of contracting obligations-and of suing and being used.”

In the Indian context, Dr. R.K. Jain has described a public corpora­tion in the following words. Below we may quote this lengthy paragraph “A Public Corporation is an autonomous institution created by an Act of Parliament to provide either for the nationalization of some business in the country by transferring all such business to the statutory institution established for the purpose, or for facilitating the acquisition by the insti­tution of undertakings belonging to certain existing companies or con­cerns or for the extension of certain social services, utilitarian or other­wise, on a large scale; or for the promotion, development and operation of certain schemes and for diverse other public purposes; and generally to provide for regulation and control of the working and operation of the institution and for other matters connected therewith or incidental thereto.”

Characteristics of Public Corporation :

The public corporation has the following principal characteristics :

1. Completely State-owned :


This institution is wholly owned by the state. A public corporation has no shareholders in the usual sense of the term. In some cases the corporation might issue its own stock with a state guarantee. The private holders of such stock are regarded as mere-creditors of the company. They got only interest at fixed rates on their investment. They cannot participate in the management of the corpora­tion. From this point of view such shareholders’ position is different from that of the shareholders of a private joint stock company. The equity of a public corporation is owned by the nation.

2. Statutory Body :

It is established by a special Act of Parliament or legislature which defines its powers, duties and immunities. The Act prescribes the form of management and its relationship to established departments and ministries. ”It is a child of the state which grows into maturity as soon as it is born.”

3. Corporate Body :

Another feature of a public corporation is that it is a corporate body. It has a separate entity for legal purposes and can sue and be sued, enter into contracts and acquire or dispose of pro­perty in its own name.

4. Financial Autonomy :


Except for appropriations to provide capital or to cover losses a public corporation is usually independently financed. It is financially self-supporting. It can thus obtain its funds by borrowing either from the Treasury or the public. It can also derive revenues from the sale of its goods and services. It can earn income, accumulate savings, build up reserves and may use and reuse its resources as it deems fit.

5. Elimination of Treasury Control :

It is usually exempted from most regulatory and prohibitory statutes applicable to expenditure of funds. The finances of the public corporations are not subject to the National Budget. It is neither required to submit annual estimates to the Treasury nor see fresh Treasury approval for new expenditures. Thus it is not subject to budget, accounting and audit Jaws and proce­dures applicable to non-corporate agencies.

6. Employees not Civil Servants :

In most of the cases, public cor­poration employees are not civil servants and are recruited and remune­rated under terms and conditions determined by the corporation itself.

7. Responsibility to Parliament :

A public corporation is accounta­ble to Parliament through the appropriate minister. Its annual reports are presented to the Parliament and its accounts can be debated.

8. Independent Governing Board :


The management of a public corporation is vested in an independent Governing Board. According to A.K. Murdeswar “executive power rests in a small board responsible for day-to-day operations and appointed by the governments. In contrast to a public company, the board is neither answerable to its shareholders nor elected by them. On the other hand, its members chosen for their ability and competence direct, organise and administer the concern which is entrusted to them.

Problems of Public Corporation :

This form of organisational pattern has given rise to certain pro­blems as well.

To facilitate initiative and enterprise on the part of the management, a public corporation enjoys sufficient freedom from parliamentary control. But a debate has been going on as to what should be the degree of this auto­nomy, because autonomy does not imply irresponsibility or mismanage­ment. Therefore, in recent years in the U.K. and the U.S., there has been a growing legislative and executive control over the public cor­porations and the line between a public corporation and a government department, in practice, has narrowed down.

A public corporation there has been called as a “corporation by courtesy”. To strike a balance between managerial and administrative autonomy and government control has given rise to a problem. Thus the possibility of a conflict between the government and the autonomous management be entirely ruled out.

Some have argued that public corporations prove to be a difficult device to work successfully even in developed countries, with an experi­enced and sophisticated administrative apparatus. They hold that the growth of public corporations in underdeveloped countries has been such that “they constitute almost a headless fourth branch of government.”

The public corporation also imposes a lot of burden on the parlia­ment. Whenever a new undertaking will be established, the parliament has to enact a separate legislation for the purpose. The legislation again has to be amended when changes in the condition of the corporation are to be brought about. All this consumes a lot of time of the parliament and involves delay. In the view of Hanson’ public corporation has become “little more then an inconvenient and frustrating constitutional friction.

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