Public Corporation: Meaning, Features, Merits and Demerits


Meaning of Public Corporation

Public corporation is an autonomous body established by government for carrying out its public mission and services. It is created by a separate act of parliament or state legislature and therefore also known as statutory corporation. This public enterprise is treated as an artificial person in eyes of law having distinct identity from its owners. It can be sued or sue others in court of law with their own distinct name and personality. 

Public corporations operate independently as per the rule and regulations which are well-defined in their act of establishment. These public bodies have the power of government along with flexibilities like private organizations. The management of public corporations lies in the hand of the Board of directors who regulates all of its functions. These directors are appointed by the government which comprises both government officials and non-officials. Government or its related agencies provide funds to these organizations for fulfilling their capital requirements. Public corporation have full autonomy over its financial affairs. It can create its own budgets, is authorized to retain as well as utilize its earnings for business activities. 

Features of Public Corporation

Various features of public corporation are as discussed in points below: –

  1. Special Statute: The public corporations are formed by a special act of parliament or state legislature. Such act clearly defines the power, objectives, privileges, functions, management structure and relationship with government. 
  2. Separate legal entity: These public enterprises have a separate legal entity with perpetual succession and common seal. It is treated as an artificial person in eyes of law having existence which is independent of government. Public corporation can buy, hold or sell properties in its own name. 
  3. Funded by the government: Public corporation generally get its capital from government. Various financial institutions and agencies linked to government also contributes to capital of public corporation. However, the shares of such corporations cannot be purchased by individual investors. 
  4. Enjoys financial autonomy: These public enterprises have financial autonomy under which they themselves create their budget and have power to retain their earnings. Public corporations do not have any regulatory and prohibitory statutes which are applicable on utilization of public funds. 
  5. Managed by board of directors: The management of these corporations is in the hands of board of directors. These directors are nominated or appointed by the Government with no interference in day-to-day functioning of these corporations. They are expected to work efficiently on sound commercial principles which means that they can make profits but not at the consumer’s expense. 
  6. Service motive: Public corporation carry out their activities primarily with the aim of services to public. They need to be self-supporting and earn reasonable profits. 
  7. Own staff: These public bodies have their own group of employees who are appointed by themselves. They are not the servants of government and nor governed by civic service rules. A public corporation itself decides the renumeration and service conditions of its staff. 
  8. Free from government control: They are completely free from any control of government. Public corporations are free to exercise their set of powers which are vested to them as per the act. There is no parliamentary, political or departmental interference in their operations. 
  9. Public accountability: This is one of the key features of public corporations. Although they have autonomy over their administrative areas and finance, yet they are accountable to legislature. Their book of accounts is audited by auditor general and also annual report are placed before the legislature. 

Merits of Public Corporation

The merits of public corporation are well-explained as given below: –

  1. Effective form of organization: Public corporation is one of the effective forms of business organization. It has a freedom like private organizations with power of government in hand. It follows middle course in between departmental organizations on one hand and privately owned companies on another hand. 
  2. Flexible in nature: These public enterprises enjoy full autonomy in taking decisions and managing its affairs. They are not under any rigid and persistent control of government. Pubic corporations can deal with its affairs with better flexibility and take initiates on their own.
  3. Bold management: Public corporation have a bold system of management as it enjoys full autonomy with regard to its internal autonomy. It is not influence by government unlike other type of businesses and can take important decisions in a speedy manner. 
  4. Legislative council: The affairs of public corporation are scrutinized by committee of state legislature and parliament. Working of these enterprises are under watch of press. It enables in keeping a check over any malpractices within the corporation arising on part of management. 
  5. Free from red tapism: The statutory corporation are free from evils of red tapism like in case of departmental organization. Board of directors hold all power to take important decisions in a quick manner. Also, policies can be changes from time to time as per the business changes enabling to take prompt actions. 
  6. Not affected by political changes: These public bodies operate as a distinct legal entity and are not influenced much by political variations. They are able to maintain a consistency in their policies and operations. 
  7. Tailor-made statute: The statute which creates these corporations can be tailor made in accordance to specific requirements. By bringing these changes, an organization can function in most efficient manner toward achievement of its objectives. 
  8. Reasonable price policy: A reasonable policy of pricing which is based on cost-benefit analysis is followed by public corporations. They operate with service motive where they make reasonable profits and offer quality service to peoples. Therefore, the public is mostly satisfied with the provision of goods and services.
  9. Qualified and contented staff: Public corporations are able to attract qualified staff as they offer attractive service conditions to its employees. Due to the presence of qualified and contented staff, instances of issues on industrial relations are less and not very severe. Employees are motivated to work efficiently towards organizational goals. 

Demerits of Public Corporation

The public corporations also suffer from many limitations which are as follows: –

  1. Have limited autonomy: Public corporations have limited autonomy and flexibility in reality. Their autonomy is limited to some extent. In practice, public corporations are interfered a lot in their workings by government officers, ministers and other politicians. 
  2. Misuse of monopolistic power: These corporations may misuse the monopolistic power available to them with regard to their field of operations. Although they are indifferent to needs and issues of customers, yet they don’t hesitate in exploiting consumers. 
  3. Labor issues: Public corporations faces more difficulties in bridging the gap in between the labor and management. There are frequent demands for abnormal increase in wages by staff even if the corporation is operating at losses. These all losses are paid out of the funds of government. 
  4. Rigid constitution: Public corporation has a very rigid constitution which can be changed only by amending the statute of its formation. This reduces the flexibility of these corporations in doing its operations. 
  5. Clash of divergent interests: There may be conflicts among representatives of different groups in corporation’s board of directors. These clashes influence the efficient functioning of corporation and may hamper its growth.
  6. Problem in passing a special act: A special act which need to be passed for creation of public corporation is a time consuming and quite difficult process. The scope of establishing these corporations is very restricted.