CHAPTER 3PRIVATE, PUBLIC AND GLOBAL ENTERPRISES

The private sector consists of business owned by individuals or a group of individuals. examples—sole proprietorship, partnership, Joint Hindu Family business. The public sector consists of various organizations owned and managed by the government. These organisations may be either be partly or wholly owned by the government.

PRIVATE COMPANY A Private company means a company which :-a. restricts the right of members to transfer its

shares.b. has a minimum of 2 and a maximum of 50

members, excluding the present and past employees.

c. does not invite public to subscribe to its share capital

d. must have a minimum paid up capital of Rs. 1 lakh

It is necessary for a private company to use the word private after its name.

If a private company contravenes any of the aforesaid provisions, it ceases to be a private company and losses all the exemptions and privileges to which it is entitled.

The following are some of the privileges of a private limited company as against a public limited company:

1. A private company can be formed by only two members where as seven people are needed to form a public company.

2. There is no need to issue a prospectus as public is not invited to subscribe to the shares of a private company.

3. Allotment of shares can be done without receiving he minimum subscription.

4. A private company can start business as soon as it receives the certificate of incorporation. The public company on the other hand, has to wait for the receipt of certificate of commencement before it can start a business.

5. A private company need to have only two directors as against the minimum of three directors in the case of a public company.

FORMS OF ORGANISING PUBLIC SECTOR ENTERPRISES

The forms of organisation which a public

enterprise may take are as follows:- Departmental undertaking Statutory corporation government company

Departmental undertakings This is the oldest and most

traditonal form of organising public enterprises.

These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself.

Examples of departmental undertakings are Indian Railways, Post and Telegraph, All India Radio, Doordarshan, etc

FEATURES OF DEPARTMENTAL UNDERTAKING

1. Part of government—The ultimate authority lies with the concerned minister who is responsible to the parliament or state legislature.

2. Government financing-The funding of these enterprises comes directly from the government treasury and revenue earned by these is also paid into the treasury.

3. Accounting and Audit– The undertaking is subject to the normal budgeting, accounting and audit.

4. Civil Service code– The enterprise is managed by civil servants whose methods of recruitment and

service conditions are the same as for other civil servants of the government.

Merits of departmental undertaking

1. Easy formation--- no registration or special law is required. The undertaking is created by the administrative decision of the government and no legal formalities are involved.

2. Direct government control—the undertaking is under the direct and complete control of the state.

3. Public accountability-- There is maximum degree of parliamentary control on the undertaking. Such control keeps the management alert.

4. Proper use of money– The risk of public money is minimized due to strict budget, accounting, and audit control.

5. Aid to public revenue– Departmental undertaking helps to increase government revenue because their earnings are deposited in the government treasury.

6. Public interest--- departmental undertakings can better serve public interest. They are very useful for public utility services.

Limitations1. Lack of flexibility2. Lack of motivation3. Red tapism– excessive formality and

routine required before official action can be taken or strict adherence to official formalities.

4. Inefficient management5. Insensitive to needs of consumers

2. STATUTORY CORPORATIONS Statutory Corporations are public enterprises

brought into existence by a special act of parliament.

The act defines its powers and functions, rules and regulation governing its employees and its relationship with government department.

Examples are Airport Authority of India, National Highways Authority of India, Central Warehousing Corporation, LIC of India, RBI, ICAI (Institute of Chartered Accountants of India)

FEATURES OF STATUTORY CORPORATION

1. Generally financed by the central or state government2. May borrow fund from the public and government

organization3. They have separate legal entity4. They have to frame their own policies and procedures

within the scope of state legislature5. Providing better services to public and make adequate

profit6. They can recruit and appoint their employee with their

service condition, since they are corporate body7. There is less government interference in matters of

the corporation

MERITS1. Autonomy (independent or freedom from

external control) of operation2. Absence of political interference3. Quick and prompt decision4. Ease of raising capitalDEMERITS:-5. No flexibility in operation6. Misuse of powers7. Lack of efficiency8. Political interference could be there

3. GOVERNMENT COMPANY A Government company is established under

the Indian Companies Act of 1956 and is registered and governed by the provisions of the Indian Companies Act.

According to the Indian Companies Act 1956, a government company means any company in which not less than 51 percent of the paid up capital is held by the central government, or by any state government or partly by central government and partly by one or more state government.

The shares of the company are purchased in the name of the President of India.

Since the government is the major shareholder and exercises control over the management of these companies, they are known as government companies.

EXAMPLES –Bharat Heavy Electricals Limited, Steel Authority of India Limited etc.

FEATURES OF GOVERNMENT COMPANY

1. It is an organisation created by the Indian Companies Act, 1956

2. The company can file a suit in a court of law against any third party and be sued.

3. The company can enter in to a contract and can acquire property in its own name

4. The Management of the company is regulated by the provisions of the companies Act, like any other public limited company

5. The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Associations.

6. These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the central Gvernment and the Annual Report is to be presented in the parliament

MERITS

1. A government company can be established by fulfilling the requirements of the Indian Companies Act. A Separate Act in the parliament is not required.

2. It has a separate legal entity, apart from the government

3. It enjoys autonomy in all management decisions and takes actions according to business prudence

4. Theses companies by providing goods and services at a reasonable prices are able to control the market and curb (control) unhealthy business practices.

LIMITATIONS 1. Since the Government is the only shareholders in

some of Companies, the provisions of the Companies Act does not have much relevance.

2. It evads (avoids, escape) constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the parliament

3. The government being the sole shareholder, the management and administration rests in the hands of the government. The main purpose of a government company, registered like other company is defeated.

GLOBAL ENTERPRISES Global enterprises are the companies which

functions all around the world. they are characterized by their huge size, large number of products, advance technology, marketing strategies and network of operations all over the world.

Global enterprises thus are huge industrial organizations which extend their industrial and marketing operations through a network of their branches in several countries.

example--- MNCs

Features of Global Enterprises1. Huge capital resources– issue of equity

shares, debentures, bonds, financial institutions and international banks.

2. Foreign collaboration3. Advanced technology4. Product innovation5. Marketing strategies6. expansion of market territory7. Centralized control

JOINT VENTURES A joint venture is a project or enterprise in which

multiple companies or individuals invest. A joint venture is the pooling of resources and

expertise by two or more businesses, to achieve a particular goal.

The risk and rewards of the business are also shared.

The reason behind the joint venture often include business expansion, development of new products or moving in to new markets, particularly in another company.

Example – Sony-Ericsson

Benefits of joint ventures1. Increased resources and capacity2. Access to new markets and distribution

networks3. Access to technology4. Innovation5. Low cost of production6. Established brand name

CANGING ROLE OF PUBLIC SECTOR

Following points highlight the changing role of public sector:-

1. Development of infrastructure2. Regional balance3. Check over concentration of economic power4. Import substitution—Its government trade and

economic policy which advocates replacing foreign imports with domestic production. Example-replacement of some agricultural or industrial imports to encourage local production for local consumption.

5. Government policy towards the public sector since1991:_

a. Reduction in the number of industries reserved for the public sector from 17 to 8 (and then to 3):-

---In 2001, only three industries were reserved for the public sector. These are atomic energy, arms, and rail transport.

---- This meant that the private sector could enter all areas (except the three) and the public sector would have to compete with them.

b. Disinvestment of shares of a select set public sector enterprises:-

---Disinvestment involves the sale of the equity shares to the private sector and the public.

---- The government had taken a decision to withdraw from the industrial sector and reduce its equity in all undertakings.

c. Policy regarding sick units to be the same as that for the private sector:-

----- All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide whether a sick unit was to be restructured or closed down.

d. Memorandum of understanding:----- Improvement of performance trough a MoU system by

which management are to be granted greater autonomy but held accountable for specified result.

---- Under this system, public sector units were given clear targets and operational autonomy for achieving those targets.