Public Enterprises

Subject: Business Studies

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Overview

The autonomous organizations established, owned, managed and controlled by the government for the purpose of providing goods and services to the people at reasonable prices. The aims of public enterprises are to provide public utilities like drinking water, communication, fuel, electricity, transport facilities etc. at a reasonable price. Nepal Telecom Co. Ltd., Nepal Airlines Corporative, Nepal Oil Corporative, Nepal Electricity Authority, Dairy Development Corporation, Salt Trading Corporation, National Trading Corporation are the some examples of public enterprises operating in Nepal.

Public Enterprises

Concept of Public Enterprises

The autonomous organizations established, owned, managed and controlled by the government for the purpose of providing goods and services to the people at reasonable prices. The aim of public enterprises is to provide public utilities like drinking water, communication, fuel, electricity, transport facilities etc. at a reasonable price.

Nepal Telecom Co. Ltd, Nepal Airlines Corporative, Nepal Oil Corporative, Nepal Electricity Authority, Dairy Development Corporation, Salt Trading Corporation, National Trading Corporation are some examples of public enterprises operating in Nepal.

 

Characteristics of Public Enterprises

  1. Government Ownership:
    It is owned by the government. It is either wholly or partially owned by the state investing at least fifty-one percent of its share capital.

  2. Government Management and Control:
    It is managed and controlled by the government. The government appoints the board of directors and the chief executive for the management of day to day affairs of the enterprises.

  3. Service Motive:
    A public enterprise is established for providing quality goods and services to the people rather than earning the profit.

  4. Financial Autonomy:
    It has financial autonomy in the operation of its business. It can generate revenues by producing and selling goods and services and make expenditures thereof on their own without government interference.

  5. Autonomous Body:
    It is an autonomous body. The board of directors is all in all in the enterprises and is independent of government regulations.

  6. Separate Legal Entity:
    It is established under the law with a separate legal entity, except the department organizations. It has a corporate status with a common seal. It can sue and can be sued.

  7. Public Accountability:
    It is accountable to the general public. The board of directors and executives of the enterprises are accountable for their performance to the parliament.

  8. Perpetual Succession:
    It has a permanent life. Being a separate legal entity, its life is not affected by the changes in the government.

Importance of Public Enterprises

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Source: www.slideshare.net
  1. Establishment of the Key and Heavy Industries:
    Public enterprises invest a large amount of money in establishing large scale industries. They make the investment in such areas where public utility is the main concern. They are very necessary to establish a large organization that the private sector can't do.

  2. Avoid Uncertainty:
    The private organization may leave the market if the profit is not there. Certain goods and services are very important for the general public at all time. For e.g.: water, electricity, food etc. must be provided with a regular supply of basic production market.

  3. Planned Development:
    Public enterprises are the main instrument or tool to support the government in developmental planning. They work according to government planning. They increase their investment amount and business activities in the area where the government has given priority.

  4. Balance Development:
    A private organization is concentrated in city areas because profit is more in city areas but for the development of a country, the rural economy is to be developed as well. The public enterprises invested in rural and remote areas conduct business activities. It helps to promote life and economy of backward areas also. Balanced development of the country can be achieved.

  5. Creation of Employees:
    Public enterprise invests a large sum of money in establishing the big size of the industry and a larger number of people will get employment opportunities. Sometimes the government may also encourage public enterprises to develop employment opportunities. This helps to solve the unemployment problem in the country.

  6. Development of Infrastructures:
    The infrastructure development is very important for the promotion of trade in the country. Public enterprises are established to invest in the infrastructure sector such as communication sector, banking, and insurance facilities, electricity etc. The private organization can't do business in such sector because it requires a large amount of investment.

  7. Public Utility Concern:
    Public enterprises are mainly concerned to provide service even though they are profit organization. They provide services to the general public after charging a very minimum amount of profit. This helps the general public to get basic requirement at affordable cost.

  8. Source of Government:
    Public enterprises pay a different kind of taxes such as customs duty, value added tax, import tax, export tax etc. The profit of the public enterprises goes to the government to conduct and finance its activities. The government uses this revenue for infrastructure development as well.

  9. Accelerate Economic Growth:
    The government can use public enterprises as a tool to increase the economic growth of a country. This organization invests a large sum of money and conduct business on large scale. Public enterprises also work in infrastructure development. They are important to increase the rate of economic growth in a country.

Types of Public Enterprises

A business organization which is wholly or partially owned by the state is called public enterprises. These are the business organization which is wholly invested by government managed by government or the majority of investment is made by a government. Public enterprises are classified into the following three types:

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  1. Departmental undertaking
  2. Public corporation
  3. Government Companies

 

Departmental Undertaking

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Source: www.slideshare.net

Those business enterprises which are totally invested and controlled by the specific ministry of government are called departmental undertaking. The ministry of government will be established to promote departmental undertaking. It is the oldest form of public enterprises. The example of departmental undertaking in Nepal is a postal department.

The features of department undertaking are explained as below:

  1. Rules and Regulations:
    The departmental undertaking has to follow all the rules and regulation provided by a government. It has to follow the same system for accounting, budgeting, and auditing as government.

  2. No Separate Legal Entity:
    The departmental undertaking and related ministry of government are same. The departmental undertaking cannot purchase and sell assets of enterprises by its own name. It is part of a government.

  3. Formation:
    Ministry of government decides to establish and operate the departmental undertakings. Simple legal procedures are sufficient to establish departmental undertaking.

  4. Management and Control:
    The departmental undertaking is directly managed and controlled by the concerned ministry of government. This enterprise is responsible for the government.

  5. Accountability:
    The departmental undertaking is accountable towards parliament and government of a country. They have to provide all work report to the government. The financial activities of the departmental undertaking are planned and managed by a government with the help of budget.

Public Corporation

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Source: clbusiness.wordpress.com

Business enterprises which are established after passing a special act or law from parliaments are called the public corporation. These enterprises are established to solve the specific need of the country. A public corporation is also called a statutory company. This company invests a large amount of capital to provide product or service for the general public.

The features of a public corporation are as follows:

  1. Own Employees:
    A public corporation has its own employees. They are not civil servants.

  2. Separate Legal Entity:
    A public corporation has a legally separate entity as it carries the business activity on its own. It can sell and purchase the assets in its own name. It can sue and can also be sued.

  3. Formation:
    Government establishes a public corporation under a special act of the parliament. The act defines the role, duties, power, objectives, function as well as the relationship of the corporation with other departments of the government.

  4. Government Ownership and Control:
    It is totally owned by a government. However, some portion of its share capital is also held by the general public. But these private shareholders are in a minority.

  5. Service Motive:
    The main motive of the public corporation is to pursue public welfare activities. It provides quality service rather than the economic gain.

Government Companies

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Source: www.slideshare.net

Public enterprises established under the company act of the country are called government companies. The government owns at least 51% share out of its total share of the company. This type of companies is more popular as it easy to organize and is considered to be more efficient.

The features of government companies are as follows:

  1. Incorporated Under Company Act:
    A government company is incorporated under the company act of the country. In Nepal, all the right, duties, privileges and responsibility are in accordance with the provisions of the Company Act 2063 B.S.

  2. Government Ownership:
    The government owns 51% of the share of the company. In other words, the government holds majority shares of the company.

  3. Separate Legal Entity:
    A government company has its legally separate entity. It can sell and purchase assets in its own name.

  4. Board of Directors:
    A government company is managed by the board of director. The government appoints the directors including the chairman in accordance with the ratio of share held.

  5. Financial Autonomy:
    A government company can manage its fiscal policy on its own. It formulates a financial plan and policies for its successful operation.

 

 

 

 

 

 

 

 

 

References:

 

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal. Business Studies. Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al. Business Studies. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.

 

 

 

 

 

 

 

 

Things to remember
  1. The autonomous organizations established, owned, managed and controlled by the government for the purpose of providing goods and services to the people at reasonable prices.
  2. Those business enterprises which are totally invested and controlled by the specific ministry of government are called departmental undertaking. 
  3. Business enterprises which are established after passing a special act or law from parliaments are called a public corporation.
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
Questions and Answers

Public enterprises is a business organization who is wholly or partly owned by the state and controlled through public authority. The aims of public enterprises are to provide public utilities like drinking water, communication, fuel, electricity, transport facilities etc. at a reasonable price. The public enterprises are established, owned, managed and controlled by government for the purpose of providing goods and services to the people at reasonable prices. 

According to A.H. Hansen, a public enterprise denotes “state ownership and operation of industrial, agricultural, financial and commercial undertakings”

According to N.N. Malaya, “Public enterprises are autonomous or semi-autonomous corporations and companies established, owned and controlled by the state and engaged in industrial and commercial undertakings”

Public enterprises invest a large amount of money in establishing a large scale of industries. Public enterprises are main instrument or tool to support a government in developmental planning. They work according to government planning. Public enterprise invests a large sum of money in establishing the big size of the industry we establish a larger number of people will get employment opportunities. Public enterprises are mainly concerned to provide service even though they are profit organization. 

Nepal Telecom Co.Ltd. Nepal Airlines corporative, Nepal oil corporative, Nepal Electricity Authority, Dairy Development Corporation, Salt Trading corporation, National Trading corporation are some examples of public enterprises operating in Nepal.

 

 

The main characteristics of public enterprises:

  • Government ownership
  • Government management and control
  • Service motive
  • Financial autonomy
  • Autonomous body
  • Separate legal entity
  • Public accountability
  • Perpetual succession

The public enterprises have the following importances:

  • Establishment of key and heavy industries
  • Avoid uncertainty
  • Planned Development
  • Balance Development
  • Creation of employment
  • Development of infrastructure
  • Public utility concern
  • Source of government
  • Accelerate economic growth

ts poThere are various types of public enterprises On the basis of organizational affiliation and management, public enterprises can be classified into following types:

Departmental Undertaking
Those business enterprises which are totally invested and controlled by the specific ministry of government are called departmental undertaking. Under the departmental undertaking, all business activities are carried on under the overall control of the concerned ministry.  The features of the departmental undertaking:

  • Formation
     Departmental undertaking is created by the government. It is attached to a government ministry. The earnings of the government are deposited to the government 

  • No separate legal entity
    The undertakings are the part of government establishment. Hence, it has no separate legal entity.  The departmental undertaking cannot purchase and sell assets of enterprises by its own name.

  • Management and control
    It is managed by the officials  of the concerned government department. It strictly follows government rules and regulations. It is controlled by the government according to existing legal provisions. It required employees as like public servant.

  • Rules and regulations
    The rules and regulations provided by the government  should  be followed by the departmental undertakings. It has to follow the same system for accounting, budgeting, audit procedures and other rules and regulations of the undertakings.

  • Accountability
    The departmental undertaking is accountable towards parliament and government of a country. The undertaking is accountable to the people like all other departments of the government through the people like all other of the government through the parliament regarding its budgeting, accounting, and audit matters.

Public corporation
Public corporation is the most widely used form of organizations for operating  a public enterprise. Its powers, duties,objectives, privileges, scope of operations and management are all defined by the act. The main purpose of the public corporation is the maximization of social welfare.This company invests a large amount of capital to provide product or service for the general public.
The features of public corporation are as follows:

  • Formation
    Public corporation is created by a special act of parliament. The act defines the role, duties, power, objectives, function as well as the relationship of the corporation with other departments of the government

  • Separate legal entity
    A public corporation can adopt its financial management system. It can sell and purchase the assets in its own name. It can sue and can also be sued.

  • Government ownership and control
    It is totally controlled by the government.  However, some portion of its share capital is also held by the general public. But these private shareholders are in a minority.

  • Own employees
    The employees of the public corporation are not the civil servants they have their own employees. It is free to frame  rules and regulations for recruitment, promotion, training of employees and  to develop other terms and condition of employment.

  • Service motive
    The motive of the public corporation is to pursue public welfare activities and   to render service to the society at large. It may have even to incur losses for this purpose. 

     

Government Companies
Public enterprises established under the company law of the country are called government companies. This type of company is a popular enterprise  and enjoys all the privileges of a joint stock company. The liability of the government is limited. The features of government companies are:

  • Incorporated under the Company Act
    A government company is incorporated under the common company law of the country. These companies are registered as private limited companies through their management and their control vest with the government. This is a type of organization where both the government and private individuals are shareholders. In 

  • Government ownership
    The government provides at least 51% of share capital.  But the government liability is limited to the face value of shares subscribed. In other words, the government holds majority shares of the company.

    Separate legal entity
    A government company has its separate legal entity which is different from the government himself. It can sell and purchase assets in its own name.

     

  • Board of Directors
    Board of directors manages the government company. All activities of the company are operated, managed, and controlled by the board of directors.

  • Financial autonomy
    A government company can manage its own independent financial policy on its own. It prepares a budget, formulates financial policies and develops accounting system for its successful operations.

Public enterprises is a business organization who is wholly or partly owned by the state and controlled through public authority. The aims of public enterprises are to provide public utilities like drinking water, communication, fuel, electricity, transport facilities etc. at a reasonable price. The public enterprises are established, owned, managed and controlled by government for the purpose of providing goods and services to the people at reasonable prices. 

According to A.H. Hansen, a public enterprise denotes “state ownership and operation of industrial, agricultural, financial and commercial undertakings”

According to N.N. Malaya, “Public enterprises are autonomous or semi-autonomous corporations and companies established, owned and controlled by the state and engaged in industrial and commercial undertakings”

Public enterprises invest a large amount of money in establishing a large scale of industries. Public enterprises are main instrument or tool to support a government in developmental planning. They work according to government planning. Public enterprise invests a large sum of money in establishing the big size of the industry we establish a larger number of people will get employment opportunities. Public enterprises are mainly concerned to provide service even though they are profit organization. 

The main characteristics of public enterprises are:

  • Government ownership
  • Government management and control
  • Service motive
  • Financial autonomy
  • Autonomous body
  • Separate legal entity
  • Public accountability
  • Perpetual succession

The main characteristics of public enterprises:

  • Government ownership
  • Government management and control
  • Service motive
  • Financial autonomy
  • Autonomous body
  • Separate legal entity
  • Public accountability
  • Perpetual succession

Government ownership:

It is owned by the government.It is either wholly or partially owned by the state investing, at least, fifty-one percent of its share capital.

Government management and control:

A public enterprise is managed and controlled by the government.The government appoints the board of directors and the chief executive for the management of day-day affairs of the enterprises.

Service motive:

A public enterprise is established for providing quality goods and services to the people rather than earning profit. Although, it may make some profits, its primary objective is to always to provide service to the society.

Financial autonomy:

It has financial autonomy in the operation of its business. It can generate revenues by producing and selling goods and services and make expenditures thereof on their own without government interference.

Autonomous body:

Public enterprise is  an autonomous body. The board of directors is all in all in the enterprises and is independent of government regulations. It has its own rules bylaws to govern its operations.

Separate legal entity;

It is established under the law with a separate legal entity, except the department organizations. It has a corporate status with a corporate status with a common seal. It can be sue and can be sued.

Public accountability:
Public enterprises are financed from public money, accountable to the general public. The board of directors and executives of the enterprises are accountable for their performance to the parliament.

Perpetual Succession:

It has a permanent life .Being a separate legal entity, its life is not affected by the changes in the government its own management.

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