Difference between Public and Government Company

Government companies and public limited companies are examples of two distinct forms of businesses. In this article, we dissect the key differences between the two.

Both government companies and public limited corporations play pivotal roles in shaping a nation’s economy, yet many individuals remain uncertain about the distinctions between these two entities. This article aims to elucidate the variances between government company and public limited companies, shedding light on their unique characteristics.

What is a company?

The term”company” refers to a deliberate association of individuals joining forces to pursue a shared objective. It represents a formal organization established by multiple individuals to conduct and execute business activities.

Features of a Government company 

1. A government-owned corporation receives funding from both public and private shareholdings. 
2. The capital market is another source of funding for the business.
3. It has its own legal identity.
4. The appointment of employees is governed by the Memorandum of Association and Articles of Association.
5. The Companies Act of 1956 and 2013 governs its incorporation.
6. The rules of the Companies Act apply to and govern management.

Features of a Public Limited Company

1. The Public limited company raises funds by selling its shares, and the individuals who purchase the shares are referred to as members. The sum so accrued is known as the share capital.
2. Rules, laws, and regulations govern its creation, operation, and dissolution.
3. The minimum number of members required for a company is 7, but there is no maximum.
4. A public limited company may offer its shareholders easily transferable shares to anyone else by filling out and signing a share transfer form.
5. A company’s shareholders do not have the right to participate in the day-to-day management of the company’s operations. This makes sure that ownership and management are kept separate.  
6. The Board of Directors has the authority to make decisions for the corporation, and all policy decisions are made by the Board using the majority rule. It confirms that management is making the same progress.

What Is the Role and Requirement of the Auditors in a Government Company and a Public Limited Company?

Government Company:

• In the context of government companies, auditors play a crucial role in overseeing and examining the records of entities involved in activities governed by law, taxation, or regulation. The primary responsibility of government auditors is to ensure that funds are received and utilized in strict accordance with established rules and regulations. 
• The appointment of auditors for government-owned corporations is done by the government, based on the guidance of India’s Comptroller and Auditor General (CAG). Notably, the CAG possesses the authority to provide directives to the auditor on the specific manner in which the audit is to be conducted.

Public Limited Company:

• Turning to public limited companies, auditors are tasked with evaluating the financial statements of these entities to ensure accuracy and consistency. The audit process concludes with the auditor presenting a comprehensive report to the company, assessing the extent to which the organization has maintained accuracy and transparency in its accounting practices.
• In essence, while both government company and public limited company engage auditors to scrutinize financial matters, the nuances lie in the appointment process and specific oversight authority. 

Advantages of a Government Company 

1. Under the Companies Act, a Government company can be founded with just a government executive decision.
2. Its daily operations are comparatively free from governmental oversight and political meddling.
3. The Government Company is governed by the Companies Act’s regulations, which keeps its management engaged, vigilant, and disciplined.
4. The Parliament or State Legislature receives the Annual Report of a Government Company. There, these reports may be analyzed and discussed.
5. Due to its personnel policies, a government corporation can hire managers with the necessary qualifications.

Advantages of a Public Limited Company

1. Due to the public’s interest, the company is required by law to disclose its information and reports, including its quarterly or annual Accounts and financial reports summarizing its present financial situation.
2. Because they are not subject to new liabilities, the shareholders and directors stand to gain the most from a public limited corporation.
3. A public limited company is more likely to secure favorable interest rates and loan payback terms. 
4. Since the value of the company’s shares is the maximum liability for shareholders and directors, they are shielded from losing their assets if the company experiences a loss.

Distinguishing Between Public Limited Companies and Government Corporations

Government Companies

1. A government company, as per the 2013 Companies Act, is one where the Central Government, a State Government, or a combination of both holds a minimum of 51% of the paid-up share capital. These companies fall into two categories. The first category includes those fully owned by the government, while the second category comprises entities jointly owned by the public and the government, with a predominant share of funding coming from the government.
2. When it comes to naming your company, Vakilsearch’s company name generator can ease the process, providing you with a list of available company names.

Public Limited Companies

1. On the other hand, a public limited company, often abbreviated as PLC, is managed by directors and owned by shareholders. This legal structure offers distinct advantages, shielding business owners from personal responsibilities and debts. Unlike sole traders and partnerships, a public limited company operates as a separate entity.
2. One noteworthy feature of public limited companies is their ability to offer shares to the public. When a PLC goes public, it becomes subject to additional administrative requirements related to taxes and is obligated to make its financial reports accessible to the public. This transparency allows shareholders to make informed investment decisions. Moreover, as publicly listed entities on stock exchanges, public limited companies are required to provide more comprehensive information compared to government companies.

Conclusion

In essence, while government companies are predominantly owned and funded by governmental bodies, public limited companies operate as distinct legal entities with shareholder ownership and the potential for public investment. Understanding these distinctions is crucial for anyone navigating the business landscape and considering the establishment of a company.

To know more about the difference between a public limited company and a government company, get in touch with the experts at Vakilsearch.

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