A “Government company” is defined under Section 2(45) of the Companies Act, 2013 as “any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company”.
Thus, the cardinal feature of a government company is not less than 51% ownership by Central/state government, either individually or jointly.
This definition includes what is generally known as public sector undertakings/ enterprises in India.
A “subsidiary company” or “subsidiary” of a Government Company would also be categorized as a Government Company provided the Government Company
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting rights [till January 2018 the word share capital was used instead of voting rights] either at its own or together with one or more of its other subsidiary companies.
Even if the control referred above is of another subsidiary company of the Government company, the company would still be categorized as a “subsidiary” and hence a government company. Thus, joint-venture companies formed by various Government companies or public sector undertakings are also considered as government companies.
The composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company, by exercise of some power exercisable by it at its discretion, can appoint or remove all or a majority of the directors;
There are some restrictions on the number of layers of subsidiaries beyond a certain number.
In respect of Government Companies, the Comptroller and Auditor-General of India appoints the auditor and does the supplementary audit through its authorized persons, based on the first audit report. Further, a Government Company’s annual reports have to be tabled in both houses of Parliament / state legislature, depending on the nature of ownership.
A Government company cannot contribute any amount directly or indirectly to any political party, unlike other companies.