Public Corporation is said to be one of the most important innovations of twentieth century in administrative organisation. This system arose to meet the needs of emergencies created by the Great War and the Great Economic Depression. It is a sort of compromise between Laissez faire and complete administrative control. The needs of time required that Government should undertake even business which was hitherto reserved for private enterprise. This meant that the Government had to devise some different kind of organisation to take care of this new business activity. Traditional organisation of administration was meant for traditional Government functions like tax collection, enforcement of law and order, enforcing some regulations etc. The administrative machinery had, therefore, to be adopted for its new role. It meant that the Government had to grant some flexibility to new organisations to enable them to conduct business which could not be conducted under the existing rigid administrative procedures. At the same time Government had to take care of ethical and moral standards and public accountability of its business. This form of public corporation has emerged out of this compromise.


Some of the definitions of public corporation are given below:

Prof. Dimek has defined a public corporation as, “a publicly owned enterprise that has been chartered under Federal, state or local law for a particular business or financial purpose”.

Prof. M. C. Shukla describes it as “a corporate body created by legislature with defined powers and functions and financially independent having a clear-cut jurisdiction over a specified area or over a particular type of commercial activity”.

Speaker of Lok Sabha defined it for the Estimates Committee. A public undertaking means an organisation endowed with a legal personality and set up by or under the provisions of a statute for undertaking on behalf of the Government of India, an enterprise of industrial, commercial or financial nature or special service in the public interest and possessing a large measure of administrative and financial autonomy”.

S. S. Khera defined “By state undertakings is meant the industrial commercial and economic activity carried on by the Central Government or the State Government or jointly by Central and State Governments and in each case either solely or in association with enterprises so long as it is managed by a self-contained management”.


Based on the definitions given above and on the basis of observations about their working, following characteristics of corporations can be discerned:

  1. It is a legal, juridical person capable of acting in its name. It can enter into contract, hold property, sue and be sued etc.
  2. It is incorporated under a special statute of the Parliament or a State Legislature laying down its public purpose, powers, functions, limitations, immunities etc. In this respect it is a big more rigid the joint stock companies.
  3. Its functions are primarily of business or industrial nature. The main objective may be of public service, but it is run essentially on business and commercial lines.
  4. It has its own finances separate from national finance.
  5. It has sufficient autonomy in day-to-day operations. Government normally lays down only policy guidelines.
  6. It has its own personal system separate from Government.

Public Corporation and Joint Stock Company

A public corporation resembles a joint stock company in two respects viz. (a) both are legal juridical persons, and (b) both are formed for carrying out some business enterprise. They differ also in two respects: (a) joint stock company is a body of private members incorporated under the Companies Act, while a corporation is a body of Government nominees incorporated under a special statute; (b) joint stock companies are organised for private profit while public corporation is organised for meeting a public purpose for public benefit.

Public Corporation and Government Department

They differ in following respects:

Departmental system is mainly employed in regulatory work while public corporation is formed to conduct business activity. This is not a hard and fast rule. Some departments are also organised for running business activity.

  1. The departments mainly spend money or earn it by way of taxes and fees. The public corporation earns money by conducting it’s business.
  2. There is a direct relationship between the income and expenditure of public corporation. This is not so in case of departmental system.
  3. Public corporations are supposed to be self-supporting at least partially, while Government Departments are run mainly on tax money.
  4. The Public Corporations have a greater autonomy over their financial and personal matters while Government departments are directly subordinate to the Government and subject to Government rules and regulations.

Advantages of Public Corporation

Public Corporation has several advantages over the departmental system. Important ones are described below:

  • It is supposed to separate politics from business functions the Government undertakes.
  • It frees Government’s business enterprises from cumbersome departmental procedures.
  • It imparts the necessary flexibility, initiative and risk taking capacity to the business operations of the Government.

Other Forms of Government Business Undertakings

Public Corporation is not the only form of organisation available for running the business activities of the Government. The major available forms of organisation are –

  • Departmental management
  • Joint Stock Company either wholly owned by the Government or of a mixed type.
  • Joint Stock Companies-owned by the Government, but managed by a private company hired on contact.
  • Public Corporation already described above. It would be worth-while to study the working of each in brief.


According to a U. N. Study the Departmental enterprise has following characteristics.

  1. Finance comes from annual budget, revenues go to treasury.
  2. Annual budget, audit, accounting etc. systems are prevalent just like those in the Government departments.
  3. Government may set up a company and transfer shares to private company.
  4. It is organised as a part of a bigger Government department and is subject to the latter’s control.
  5. It enjoys immunities available to other Government departments.
  6. The staff consists of civil servants whose methods of recruitment, training,discipline etc. are governed by the general rules applicable to the Government servants.
  7. Methods of making procurement of Materials and also of goods or the same or those for other government departments.

The departmental undertakings are generally not very much amenable to the needs of business and industry. The system is generally adopted only when the needs of secrecy, national security etc. outweigh the need for business autonomy e. g. in case of defence industries. The only advantages of the system could be greater control by political masters and greater possibilities of co-ordination with other departments. The disadvantages are many great red tape, cumbersome procedures, lack of flexibility etc.

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