Statutory Corporation: Meaning, Features, Merits & Demerits
Statutory corporations in businesses are defined as independent corporate bodies that are formed by a special act of Parliament or state legislature. Explore more about its features, merits & demerits.
Can you visualise a business that runs with the power of a government but works like a private company? You will be happy to know that there exist statutory corporations where public interests meet corporate efficiency. But you may wonder how these entities balance profit purposes with social responsibilities. In this blog, let's try to find the intriguing dynamics of statutory corporations and their role in shaping the economy.
What does a statutory corporation in business mean?
Statutory corporations in businesses are defined as independent corporate bodies that are formed by a special act of Parliament or state legislature. These statutory companies have predefined functions, duties, powers, and immunities and are accountable to the legislature under which they have been established. Examples of statutory corporations include Air India, State Bank of India, Life Insurance Corporation of India, etc.
What are the features of a Statutory corporation?
The main features of the statutory corporation are:
- It is a Corporate Body: Statutory corporations are corporate bodies. They are artificial persons which are created by the law and are regarded as a legal entity. These corporations are managed by a board of directors who are selected by the Government. A corporation has a right to enter contracts and can commence any kind of business under its name.
- Owned by State: The Statutory corporations are wholly owned by the state. The state provides help to such corporations by subscribing to the capital fully or wholly.
- Answerable to the Legislature: A statutory corporation is accountable either to parliament legislature or state assembly to whoever creates it but it can enjoy freedom in case of internal management and running of operations in the corporation. Parliament has no right to restrict the working of statutory corporations except to discuss policy matters and the overall performance of corporations.
- Own Staffing System: Employees of the statutory corporations are not government employees, although the government owns and manages a corporation. Employees of various corporations receive uniform pay and benefits from the government. The employees in the statutory corporations are employed, salaried, and administered as per the rules of the corporation.
- Financial Independence: A statutory corporation enjoys financial independence. They are not managed under any kind of budget, accounting, or audit controls. In times of need, the statutory corporations can borrow money from the government.
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Apply NowWhat are the merits and demerits of a statutory corporation?
A tabular representation of the merits and demerits of a statutory corporation is given below:
|
Merits |
Demerits |
|
Initiative & Flexibility: Operations and management are led independently, without government interference, allowing for initiative and flexibility. |
Autonomy on Paper Only: Autonomy is often nominal, as ministers, government officials, and political parties may interfere with operations. |
|
Administrative Autonomy: The corporation manages its affairs with independence and flexibility. |
Lack of Initiative: Without a competitive edge and a profit motive, employees may lack the drive to increase profit or reduce losses, which the government covers. |
|
Quick Decisions: Less bureaucracy and fewer formalities lead to faster decision-making. |
Rigid Structure: Objectives and powers are defined by law, and any amendments are delaying and complex. |
|
Service Motive: Public interest is protected as activities are discussed in parliament. |
Clash Amongst Divergent Interests: Conflicts among board members with divergent interests can deter smooth functioning. |
|
Efficient Staff: The corporation can set its own rules for employment and wages, attracting efficient staff. |
Unfair Practices: The board may engage in dishonest practices, such as overpricing to cover inefficiencies. |
|
Professional Management: Board members include business experts and representatives from various groups, nominated by the government. |
Suitability: The structure suits undertakings requiring monopoly powers, special powers defined by law, regular government grants, and a balance of public accountability and operational sovereignty. |
|
Easy to Raise Capital: Fully government-owned, these corporations can increase capital easily by issuing bonds at low interest rates. |
Conclusion
Statutory corporations, an autonomous body but with public accountability manage its governance without the interference of the government. While enjoying autonomy these corporations also struggle with red tape interventions. A balance between achieving public goals and efficient management confirms its success.
FAQs
Q1. What is the purpose of a statutory corporation?
Ans. Statutory corporations are government establishments created by a Special Act of the Parliament. The Act outlines its powers and functions, rules and regulations leading its employees, and its relationship with government departments.
Q2. What is the other name of statutory companies?
Ans. A Public Corporation is also called a public sector enterprise and is a statutory organisation under the ownership of the government.
Q3. Is the RBI a statutory corporation?
Ans. Reserve Bank of India is a statutory body. RBI was recognized through the Reserve Bank of India Act, of 1935. RBI is not a constitutional body. Though it has significant institutional independence, it has been under the control of the Ministry of Finance, Government of India after it was nationalised in 1949.
Q4. What is the other name of statutory?
Ans. Statutory law, also known as legislation, refers to laws endorsed by legislative bodies such as parliaments or congresses.
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