Government Company – Meaning and Concept
A Government Company is a special category of company defined under Section 2(45) of the Companies Act, 2013. According to this provision, a government company is one in which not less than 51% of the paid-up share capital is held by the Central Government, State Government, or partly by the Central and partly by one or more State Governments. The definition also includes subsidiary companies of such government companies. Although government companies are incorporated under the Companies Act like private or public companies, they function with substantial government control and public accountability. These companies are formed to carry out commercial, industrial, or developmental activities while retaining a corporate structure. The objective is to combine government ownership with corporate efficiency, allowing flexibility in operations compared to traditional government departments. Despite government ownership, a government company is considered a separate legal entity, distinct from the government itself.
Legal Characteristics and Nature
A government company possesses all essential features of a company, such as separate legal personality, perpetual succession, limited liability, and common seal, subject to the Companies Act, 2013. However, its management and control reflect strong government influence. Under Section 394, special provisions apply to government companies regarding audit by the Comptroller and Auditor General of India (CAG), ensuring financial transparency. Directors are often appointed by the government, and policy decisions align with public interest. Unlike statutory corporations created by special Acts, government companies are incorporated through registration, making them more adaptable in commercial operations. Courts have clarified that a government company is not a government department, but an independent corporate body. This distinction ensures accountability under company law while maintaining public sector objectives.
Importance and Legal Position
Government companies play a vital role in sectors such as infrastructure, energy, defense, banking, and public welfare. They act as instruments of socio-economic development while operating within a corporate framework. Even though the government is the majority shareholder, these companies can sue and be sued in their own name. Employees of government companies are not considered government servants, unless specifically provided by statute. Judicial decisions have emphasized that government companies must follow company law provisions like meetings, filings, and disclosures. This balance between public ownership and corporate governance ensures efficiency, accountability, and legal compliance. Thus, the concept of a government company bridges public administration and corporate law effectively.
Realtime Example
A practical example of a government company is Bharat Heavy Electricals Limited (BHEL). The Government of India holds more than 51% of its paid-up share capital, making it a government company under Section 2(45) of the Companies Act, 2013. BHEL is engaged in manufacturing power generation equipment and operates like a commercial enterprise, entering contracts, earning profits, and competing in the market. However, its major policy decisions, board appointments, and audits are influenced by the government. Despite this, BHEL is legally separate from the Government of India and can initiate or defend legal proceedings independently. This real-time example clearly shows how government ownership coexists with corporate functioning.
Mnemonic to Remember Government Company
A simple mnemonic to remember the concept of a Government Company is “G-51 CAP”.
G – Government ownership
51 – Minimum 51% shareholding
C – Companies Act incorporation
A – Audit by CAG
P – Public interest objectives
This mnemonic helps students quickly recall the key elements under Section 2(45) of the Companies Act, 2013. By associating each letter with a legal requirement or feature, it becomes easier to structure answers in exams. Mnemonics are especially useful for OU LLB students while revising multiple company law definitions efficiently.
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