A statutory company is a corporate body that is formed by a state legislature or Parliament through a special act. Such companies are generally known as statutory corporations. These companies are created to perform public functions and play a significant role in the economy of the nation. Among the general examples of statutory companies one can name even companies like Reserve Bank of India (RBI) and Life Insurance Corporation of India (LIC). Those were established on the basis of particular legislative acts. These corporations operate under the terms of their founding statute, have a strong amount of autonomy, and are constructed to promote public welfare in addition to making money.
Statutory Corporation Meaning
A statutory corporation is a corporate body created by a statute of the state government to specifically accomplish some identified function considered to be in public interest. Like private companies, these corporations are separate legal persons having their own corporate structure, rights, and responsibilities. Unlike private companies, statutory corporations are not brought into existence under the Companies Act through registration; instead they are created by special legislation.
Some of the distinguishing features of statutory corporations are the ability to sue or be sued, their capacity to make contracts, and owning property. They normally have a sense of serving the public good in finance, transportation, and utilities sectors among others and are typically attuned to balance the need to earn profitability with being socially responsible.
Features of Statutory Corporation
These features distinguish a statutory corporation from the other business entities and, therefore, are very important in a country’s infrastructure. They identify the unique feature of statutory corporations as striking a balance between public interest and business efficiency. The main features are:
- Established by Special Act: Statutory corporations are formed by an act of parliament or state legislature. The act outlines the corporation’s powers, responsibilities, and operations.
- Autonomous Legal Entity: These corporations have their own legal identity, separate from the government. They can own property, sue or be sued, and enter into contracts independently.
- Government Ownership: Statutory corporations are typically fully or partially owned by the government, which provides funding and oversight.
- Public Service Objective: While statutory corporations can generate profits, their main goal is to serve the public and contribute to national development, often in essential sectors like banking, insurance, and utilities.
- Financial Independence: These corporations are usually financially self-sustaining. They generate revenue through their services and are expected to manage their finances without heavy reliance on government budgets.
- Regulated by Special Laws: Unlike private companies, statutory corporations are not governed by the Companies Act. Instead, their activities are regulated by the provisions of the law that created them.
Advantages of Statutory Corporation
Statutory corporations have been given operational autonomy, which means they have the freedom of flexibility in decision-making but with stability due to government support. They integrate the objectives of public service with business efficiency and reinvest all the profits garnered and always dwell on long-term national interests. Benefits attributed to statutory corporations make this an extremely attractive model to deploy in key industries toward public service delivery:
- Operational Autonomy: Statutory corporations operate independently of the government, providing them with the flexibility to make decisions based on business needs rather than political pressure.
- Public Accountability: Despite their autonomy, statutory corporations are accountable to parliament or the legislature, ensuring transparency and responsibility in their operations.
- Focused Public Service: These corporations are created to serve public welfare, often in sectors crucial to economic development, such as finance, transport, and utilities.
- Professional Management: Statutory corporations are usually run by professionals with expertise in their respective fields, ensuring efficient operations and effective management.
- Financial Self-Sufficiency: Most statutory corporations generate their own revenue, reducing the financial burden on the government. For example, entities like LIC and RBI operate profitably while fulfilling their public service mandates.
- Long-Term Development Focus: Since statutory corporations are not driven solely by profit motives, they can focus on long-term goals that benefit the economy and society, such as infrastructure development and financial inclusion.
Statutory Corporation Disadvantages
These disadvantages prove the challenge faced by statutory corporations in achieving a balance between public service goals and operational efficiency. However, though these advantages have resulted in several statutory corporations, there are also several disadvantages of statutory corporations:
- Government Interference: While statutory corporations are supposed to operate independently, political interference can sometimes affect decision-making and operational efficiency.
- Bureaucratic Delays: As government-backed entities, statutory corporations often face slow decision-making processes due to bureaucratic red tape, leading to inefficiency.
- Lack of Competition: In sectors where statutory corporations have monopolistic power, there may be little incentive to innovate or improve services, leading to customer dissatisfaction.
- Limited Flexibility: Statutory corporations must adhere to the rules and regulations of the act that created them, which can restrict their flexibility and responsiveness to market changes.
- Dependence on Government: Although most statutory corporations are financially self-sufficient, some still rely on government support for funding, which can create financial constraints or inefficiencies.
- Risk of Corruption: Being large government-backed entities, statutory corporations can sometimes fall prey to corruption, favoritism, and mismanagement if not properly regulated.
Statutory Corporation Examples in India
These examples describe the role of statutory corporations in the management of the Indian economy and public services sector. The following are some excellent examples of these corporations in India, which can testify to their role in very important sectors:
- Reserve Bank of India (RBI): Established under the RBI Act of 1934, the RBI is India’s central banking institution responsible for controlling monetary policy, regulating banks, and maintaining financial stability.
- Life Insurance Corporation of India (LIC): LIC was founded under the LIC Act of 1956 to provide life insurance services in India. It is one of the largest insurance providers in the country, contributing to both public welfare and economic development.
- State Bank of India (SBI): Initially created as the Imperial Bank of India, it was nationalized under the State Bank of India Act of 1955. SBI is now one of the largest and most trusted banks in India.
- Airports Authority of India (AAI): AAI was formed under the Airports Authority of India Act of 1994 to manage and maintain the civil aviation infrastructure in India.
- Indian Railways: While not technically a statutory corporation, Indian Railways operates under government control and serves as a public service entity, managing the vast railway network in India.
Conclusion
RBI and LIC are examples of statutory importance. Statutory corporations like these make important strides in significant sectors relating to economic development, which depict a healthy balance between public service and financial sustainability. Statutory corporations are useful for sectors that are essential for economic growth and societal development. For example, RBI and LIC have autonomous operation and activity under their control while being answerable to the public. In general, political interference and bureaucratic delays seem to be daunting challenges to function in such statutory corporations. Understanding the advantages and disadvantages of statutory corporations will help in utilizing them optimally to serve the interests of the public.
Statutory Company Example FAQs
What is a statutory corporation?
A statutory corporation is a corporate body established by a specific act of parliament or state legislature for performing a public function.
What are the advantages of a statutory corporation?
Its advantages are autonomy in operations, accountability to the public, financial independence, and an emphasis on public service.
What are some illustrations of statutory corporations in India?
Few examples are RBI, Life Insurance Corporation (LIC), and State Bank of India (SBI).
What are the disadvantages of statutory corporations?
Disadvantages include bureaucratic delays, government interference, lack of competition, and limited flexibility.
Ways in which a statutory corporation is different from a private company?
While statutory corporations are formed with the law and for public purposes, private companies are established under the Companies Act with an objective of making profits.
