What are the disadvantages of company form of management ?

The disadvantages of company form of management are :

(1) The first defect of the company system, particularly in India, is that the government companies have been constituted mostly as private limited companies. This enables them to enjoy certain privileges which are not available for other companies. Besides, such government com­panies outwardly possess the characteristics of a company. In practice, however, because of the typical nature of the shares and shareholding in the companies, many of the provisions of the Indian Companies Act do not apply to them. Under this form of management, the government is the only or major shareholder. So the companies have been criticized as more or less “extensions of departments”.

Forms of Business Organisation | IGCSE and AS Level Business Studies

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(2) The second defect follows from the first. A privately managed company operates under the vigilant eye of the shareholders. In a govern­ment company, there is no such check of the shareholders or the manage­ment. The directors and managers who are responsible for management are government officials. They have very little initiative or incentive in the prosperity of the company. Since a government company in not directly under the control of the government, it may frequently suffer from waste and inefficiency.


(3) Another defect of these companies is that very often they do not make available even the minimum of information about their activi­ties to the general public. “Its activities and policies are sometimes carried on behind a thick smokescreen of secrecy which conceals much of what should be publicly known.” Hanson also pointed out “it is clearly undesirable that the company should be used as a screen to protect from the light of publicity and the arrows of justified criticism the .operations of an irresponsible and power hungry bureaucracy.”

(4) A government company is formed by the Executive Resolu­tion. So there is a limitation of parliamentary control over the enter­prise. But a public enterprise involves tax-payers’ money. Therefore although the parliament has a constitutional right over an overall control of public money, in case of a government company, parliamentary control and accountability is hardly there. Some have therefore criticized it as a “fraud on the constitution.”

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