Public Corporation | Characteristics | Problems & Types

According to Professor J.M Pfiffner, a corporation is a body framed for the purpose of enabling a number of persons to act as a single person. William J Grange defines a corporation as an artificial person which is authorized by law to carry on particular activities and functions. Government Corporation is organized to achieve public purposes authorized by law. Corporation is a corporate judicial person capable of entering into contract and acting in its own name.


  • It is a legal person capable of suing and being sued, entering into contract, acquiring and owing property in its own name.
  • It is corporate under a special statute of the parliament which lay down its purpose, power and functions.
  • It functions are primarily of a business or industrial nature.
  • It has its own budget and finances separate from the national budget and finance
  • It enjoys complete administrative autonomy from the control of the executive.
  • Its personnel do not form a part of the civil service but are recruited independently.


  • Corporation is constituted under a separate status of the legislature while company is incorporated under a general companies act.
  • Public corporation is constituted for public benefit while the main motive of a company is profit.
  • Public corporation has no shareholder in the ordinary sense of the term.


  • Departmental system is generally applied for the state regulatory activities whereas corporation system is favored for business enterprise.
  • Department system follows bureau system whereas corporation adopts board system.
  • Corporation is a corporate body and can sue and be sued but not the same with department.
  • Corporation is generally meant to produce revenue whereas departments are mostly spending units of the government.
  • Corporation enjoys both administrative and financial autonomy, but not the case with department which work under the complete control of the Chief Executive.
  • Corporation can raise its own capital funds, borrow and buildup reserves and frame it own budget. Unlike department which cannot function till annual grant are made available to it.
  • Corporation is subject to less political pressure and influence than the department.
  • There is flexibility of procedures and policy in the working of corporation whereas the working of a department is characterized by formalism, routine and rigidity.
  • Corporation are not subject to government audit but to commercial audit
  • The legality liability of a corporation is greater than that of the department. The corporations are not immune from action in torts while the departments as participants in the sovereign power are.


According to L.D White, there are three types of corporation.

First: there are corporation owned by the government either outright or in majority interest and controlled by the government.

These are appropriately known as government corporations.

Second: there are corporation in which government either has an investment or broad representation or both but in which control is rested in the hand of private parties.

These are less than full fledged government corporations and are conveniently termed “mixed enterprise”.

Third: there are corporations established by private parties under authority of law and subject to some degree of supervision by the government, but in which there is no element of government or broad representation.

This class of corporations comprises essentially private bodies beyond the proper meaning of the term, Government Corporation, although they may be utilized as a matter of convenience to co-operate in government activities.


In the words of Professor Robson W.A. corporation system is one of the most important innovations in political organization and constitutional practices.

Firstly, it takes the purely business and technical services of the government outside of the domain of politics.

It means that decision in respect of business activities would be made by a body selected on the basis of merit and not of politics. This will increase efficiency and result in economy.

Secondly, a public corporation will exercise its duties continuously and with a freedom of action that is not possible for the legislature.

The legislature is in session only for brief period and while it is in session it can devote only a part of its time to the affairs of any service.

Moreover, action once taken by it can be modified only by passing a fresh law after great labour and delay.

Thirdly, the creation of public corporation for the revenue production services would relieve these services from the operations of administrative orders which prescribe in great details the procedures with regards to purchase, accounting, and contracting etc.

The corporation builds up its own administrative system which suits it own needs.

Fourthly, the corporation system will offer immediate relief to the legislature from the burden of considering the details of organization, power, functions, method of work and annual appropriation etc. of these services.

Under the corporation system, the greater part of this burden will be performed by the board of directors of the several corporations.

Each corporation would have a separate budget prepared by the directing administrative staff of the corporation and submitted to the board of directors.

The latter will submit it to the legislature through the minister of finance.

Finally, under the corporation system, the employee of the service will have an incentive to economy and efficiency.

They know that the benefit resulting from increased economy in expenditure and from increased revenue will come directly to the service instead of going to the general treasury.

This will promote the development of the esprit de coup and interest in the employees.


Suitable for business enterprises only:

This system can be best used for business enterprises only. This is because the success of the business operation depends upon conformity to the conditions prevailing in the market.

A public enterprise in order to be completely and usefully under the market control has to be freed from the political control.

If it is put under political control, it will become a pawn in the game of party politics thereby killing the efficiency of the enterprise.

Financial autonomy:

The corporation should have an independent finance and possess financial autonomy. The financial procedure of the government is usually rigid, dilatory and cumbersome.

Therefore, it is essential that the corporation should enjoy financial autonomy and freedom from departmental interference in order to attain adequate flexibility in operation.

Off course, in order to safeguard the interest of tax payers, corporations are not exempted from audit control. In our country, however, such audit is conducted by private auditors.

Administrative autonomy:

The public corporation should enjoy autonomy not only in fiscal matters but also in administrative matters.

This is because the corporations have to work on business principles. They have to follow business standards rather than administrative, adaptability to the changing conditions of the market.

If the corporation has to seek every time prior approval of the government before taking any step or entering the market, the market condition by that might change.

According to Herbert Morrison, a large degree of independence for the board in matter of current administration is vital to their efficiency as commercial undertakings

The government should lay down the general policy of the corporations but leave it execution in the hands of the boards of directors.

Moreover, corporation should have freedom to draw its own plan and programmes, to adopt its own methods and techniques, to employ it own administrative staff and supervise it own operations.

Judicial character:

The corporation can only be established by an act of the legislature. It is a juristic person i.e. it can sue and be sued in its own name. It can hold proprietary right, contract agreement and conduct legal dealings.

Problems of Public Corporation

These problems are mainly three in number, namely- the problem of responsibility towards the legislature, the problem of protection and representation of consumer’s interest and the problem of labour welfare.


The problem always remains as how to safeguard national interest without encroaching upon the administrative independence of the corporation and usurping their managerial responsibility.

Under the usual parliamentary procedures, the legislatures as the representative of the people’s interest, exercise control over the administration through the minister who holds the administrative agencies under his control.

But this type of control is not available in the case of public corporation as it is not under the administrative control of the minister but an autonomous body in matter of administration, recruiting its own personnel and adopting its own methods of working.


Public corporation is not an end in them but an extension of government activities designed to promote public welfare.

The question is how the interest of consumers can be safeguarded when corporations holds monopoly right in their fields.

Hence, it is necessary that the interest of the consumer should be represented in matters of fixing up prices and quality of goods.

Robson proposed the creation of the independence agencies of a judicial character to which aggrieved consumers could bring their complaints and which the corporation would be required to justify their price policy.


The need for safeguarding the interest of the labors is as important as those of the consumers. The best means so far devised is to give the laborers a share in management.

Their representative advise it’s in matter of fixing wages, hours of work, leave rule, holidays, amenities for life, insurance against casualties and other conditions of work.

In addition to share in management, labour tribunals are established to settle the dispute arising between the management and the laborers.

The tribunals include equal members of representatives of the laborers and management with a chairman appointed from among the judges of high court.

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