A Government company is established under the Indian Companies Act, 1956 and is registered and governed by the provisions of the Indian Companies Act. These are established for purely business purposes and in true spirit compete with companies in the private sector. 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 governments. From the above definition, it is clear that the government exercises control over the paid up share capital of the company. 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.
Government companies have certain characteristics which makes them distinct from other forms of organisations. These are discussed as follows: (i) It is an organisation created by the Indian Companies Act, 1956; (ii) The company can file a suit in a court of law against any third party and be sued; (iii) The company can enter into a contract and can acquire property in its own name; (iv) The management of the company is regulated by the provisions of the Companies Act, like any other public limited company; (v) The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company. The Memorandum and Articles of Association are the main documents of the company, containing the objects of the company and its rules and regulations; (vi) These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the Central Government and the annual report is to be presented in the parliament or the state legislature; (vii) The government company obtains its funds from government shareholdings and other private shareholders. It is also permitted to raise funds from the capital markst