Meaning And Features of a Public Corporation- Merits, Demerits, Restrictions

Meaning And Features of a Public Corporation- Merits, Demerits, Restrictions
Meaning And Features of a Public Corporation- Merits, Demerits, Restrictions



A public corporation is a “person” created by an Act or State law, to act independently but under the supervision of various regulatory agency. A public corporation is an artificial person created by law which may in the alternative be referred to as a statutory corporation or body.

Instances of a Public Corporation

The following among others are the public corporations in India:

  1. The Air India Corporation
  2. Life Insurance Corporation
  3. Reserve Bank of India
  4. Agriculture Insurance Company of India
  5. Air India Engineering Services
  6. The British India Corporation


This study shall extend to discuss the following:

  1. Meaning of Public Corporation
  2. Features of Public Corporation
  3. Advantages of Public Corporation
  4. Restrictions Applicable to the Public Corporation

Meaning of Public Corporation

A public corporation is a public business enterprise with a degree of autonomy which owes its origin to an Act of the central government of India or a law validly made by a state in India.

The law which creates this public business enterprise usually stipulate the objectives, powers, and functions of the corporation so established or alternatively appoint another person or authorize an official to spell out the powers, duties, and function of the corporation.

Features of Public Corporation

There are some factors or elements which must be present for a corporation to qualify as a public corporation, otherwise such will be deemed as a private corporation. The following are some usually pronounced features of a public corporation in India and most common law jurisdiction.

They are:

  1. For a corporation to be a public corporation, it must be created by an enactment which may be an Act of the Parliament of the central government of India or the legislature of the State government.
  2. The Act of the central or state government of India which enacted the said public corporation must define the extent of the powers, objectives, and functions of the public corporation.
  3. Alternatively, it can empower someone to perform the task of stipulating the powers, objectives, and functions of the corporation.
  4. Also, the law must stipulate the ministry which shall administer the corporation in state or the central government.
  5. The public corporation so created enjoys a distinct legal personality with a common seal and perpetual succession.
  6. In essence, the corporation exists autonomously from the government to acquire and dispose of property, commence and defend judicial proceedings in its corporate name.
  7. Being a corporate entity created by law at the instance of the state or central government in India, a public corporation’s initial share capital is provided by the government. The law in many circumstances equally permits the public corporations to raise funds from the capital markets.
  8. Though the initial share capital and in fact the startup funds of a public corporation is raised by the government who by a special Act created it. A public corporation has financial autonomy.
    By financial autonomy, it is intended to state that a public corporation prepares and implements its own budget; and has the liberty to apply its revenue in any lawful manner in furtherance of its business.
  9. The affairs of the public corporation are managed by the board of directors who are duly appointed by the tier of government behind the creation of such public corporation. It is however insisted that notwithstanding the appointments made by the government, there is no government interjection in the operation of the affairs of the public corporation.
  10. A public corporation being an independent legal personality enjoys the unfettered rights of appointing or employing its staff, who shall work strictly to attain the object such as a public corporation.
  11. The terms and conditions of the employment which shall include the salary of the staff are determined by the public corporation though in line with prevalent employment law in India.
  12. From the establishment of a public corporation, its principal objective is service-oriented, but not precluded from making profits which will be applied in the continued funding of the corporation.
  13. The financial activities of a public corporation is under the scrutiny of the Auditor-General of India to whom they are bound to present an annual report and statement of account.
  14. A public corporation has to submit its annual report to as well as present same to the legislative arm of the central or state government as the case may be.

Advantages of a Public Corporation

Obviously for a public corporation to enjoy the patronage of the government either, of the Central government of India or the state government there must be an advantage or an overriding public interest which the existence and operation of the public corporation must satisfy. These advantages are as follows:

Proper and Effective Management arising from  Autonomy

It has been earlier mentioned that a public corporation enjoys operational autonomy. The operational liberty of the public corporation means that it is run in a business manner.

The managing authorities are at liberty to adopt any business strategy which shall operate to attain the objective of establishing the public corporation.


Public corporations are an establishment of law validly made by the legislative arm of either the central or state government of India. It follows that these corporations are under the legislative scrutiny of the relevant legislative committee.

Also, with the legislative mandate vested in the office of the Auditor-General, the affairs of the public corporation are under the scrutiny and evaluation of the Auditor-General while the media outfits also through investigative journalism mirrors the affairs of the public corporation for the overriding public scrutiny.


The Public corporation while at the liberty to employ its staff and effectively regulate their conducts subject to the prevalent employment laws and practice.

Public Corporations avails commendable working conditions and competitive salary structure to its employees, this will attract a great number of applicants whilst the corporation will be faced with such great opportunity to select the most qualified persons as its employee to work towards attaining its objective.

The Statute

The Special Act which a given public corporation owes its origin to, can be amended either by proper legislative process or through administrative regulations to suit the realities of the society where it is found to be inadequate, in order to continue meeting up with the society need which led to the establishment of the corporation.

Political Changes

The unique feature of a public corporation is that political changes and instability does not affect its continued existence and operation as the legislators in their wisdom granted it perpetuity and autonomy at the time of establishment.

Likelihood of Exploitation

The chances of exploiting the public corporation by the board of directors who are saddled with the task of administering the corporation is possible.

Also, people from different spheres of life and interest group with the attendant conflict of interest which will arise at an attempt to exploit the corporation the Board of Directors are left with no option other than to discharge their duties as properly stipulated in law creating the public corporation.

Pricing Policy

Since public corporations from the onset are established for the overriding public interest. The public corporations adopt pricing policy which is usually based on the cost-benefit analysis (comparative cost advantage) as opposed to undiluted capitalist profit based approach.

Therefore, the public is satisfied with the provision of goods and services, by the public corporation.

Restrictions Applicable to the Public Corporation

It is pertinent to observe some of the challenges and setbacks which is faced by a public corporation.

They are as follows:

  1. The Autonomy and operational liberty which is vested in a public corporation are with due respect, a mere restatement of laws. In reality, public corporations face untold interference from the politicians owing to the roles they play in the establishment and continued existence of the corporation.
  2. Abuse of Power: Public corporations by their very nature enjoy an enviable monopoly in a given sector of the economy under which they exist and operate. As well, the staff of the corporation relies on any administrative lapse to exploit the consumers.
  3. Rigid Constitution: The very nature of a public corporation is fraught with rigidity and technicalities.
    In essence, notwithstanding the various resolutions of the Board of Directors, the principal changes which may need to be reflected in the affairs of the Public corporation need an outright amendment of the laws creating the public corporation. Again the flexibility ascribed to public corporations are merely in principle.
  4. Low Efficiency: With the operative civil service structure, a person who is not properly qualified to head a public corporation may assume the position of directing the daily affairs of a public corporation of which he lacks the managerial skill to do.
  5. Legislative Protocol: The legislative process is cumbersome and time-consuming. Therefore, where there is urgent need to create or amend the structure of an existing public corporation which must be done via the Special Act by reason of urgency.
  6. Clash of Interests: As earlier mentioned while it may seem to be an advantage that the Board of Directors of a public corporation is from divergent groups of interest, evident in this mode of appointment of board of directors is that various forms and manners of conflicts may arise among the board members which shall reflect on the growth of the public corporation.


The legal status of a public corporation is not in dispute as clearly public corporations do not follow the usual mode of incorporation under the Company Act of India. Public Corporations are the outcome of legislative fiat of either the Central or State government of India. In other words, the public corporation from its existence enjoys the backing of the law which created it.

It may seem advantageous that the law has made provisions which will determine how the corporation will be administered in its entirety.

It is important to highlight that a lot needs to be done by  the legislative arm of either the central government of India or the state government to curtail the inherent flaws in the operation of public corporations in India.

This is so because, these flaws are the obvious reasons for the daily collapse of existing public corporations in India.


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