Introduction to Business World
To work in the business world, the owners are required to choose the form of business structure that they need to function in. There are Sole Proprietorships, Corporates, MNCs and other organisations. Among these, Companies play an impressive role in the growth of the economy of India.
Also, Companies are divided into two – Private and Public Owned. The Public Owned Companies are also called the ‘Government Companies’. In this context we will understand what a Government Company is? Who owns a Government Company? And so forth to talk about these Government Companies.
What is a Government Company?
There are companies where the Central or the State Government, or any of the two, or both of them combined holds 51% of the stake or capital of that particular company, then the specified company is deemed to be a ‘Government Company’. ‘Public Enterprises’ or ‘State Enterprises’ are the other names for this Government Company. They are to be registered legally under the Companies Act.
Under section 2(45) of the Companies Act 2013, a Government Company is defined 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”.
This means that one of the basic features of the company is to have 51% of governmental stake.
Subsidiary Company
Another extended part of the Government Company is this – Subsidiary Company. A ‘Subsidiary Company’ or simply a ‘Subsidiary’ is a subsidiary or the side or extended part of a Government Company. In the case of a subsidiary company, the board is controlled by the Government Company itself.
The Government Company exercises more than half of the control of voting rights on the subsidiary. Joint Ventures created by governments and even the public sector undertakings are also considered as the Government Companies. The BOD or Board of Directors are controlled by the government.
In case of Government Companies, the auditor is appointed by the CAG (Comptroller and Auditor General of India). Also, a Government Company’s books are presented to both the houses of parliament, and unlike other companies, a Government Company cannot contribute directly to the political parties.
Features of Government Company
Specified features are anticipated to be present in any kind of organisation. Similarly, in Government Companies too, some distinct features bloom. Those features are discussed in the following paragraph.
Features of a Government Company are:
Government Companies are legally registered under the Companies Act 2013, under section 2(45). The Government Companies observe the rules engraved in this section.
Like all other companies, Government Companies too have a separate legal entity, that is to be sued and can sue in legal matters. They can also hold properties in their name.
The annual reports, at the end of the financial year, are to be presented in the houses of Parliament.
The capital of the company is to be held wholly or partially by the state government and the central government together or individually.
They are managed by the directors who are appointed by the government itself.
Accounting and Audit Practises are done by Chartered Accountants appointed by the government.
The employees are not civil servants. They regulate their own personal policy following the Articles of Associations.
Government Companies in India
India is enrolled as a developing country, with a mixed economic system in regard to trade. This means that the big enterprises in India are both owned by the Private Company as well as still by the Government Companies. While the Government remains predominantly engaged in the crucial sectors, like the petrol or mines, the private companies remain engaged in developmental sectors as well.
There is a huge list of Government Companies in India. Few of them are listed below:
List of Government Companies in India
Understanding the Background for Government Companies
Humans use resources to sustain their life on Earth. Resources are any materials obtained from nature which can be used by humans as food, shelter or other services. Mankind started processing the raw materials from the very beginning of the Neolithic period for its own use. In later times with the growth of population production systems became more localised. In modern days we see industries performing the job of processing raw materials in a single place. These started with the effort of individuals to sell the goods and gain profit. With a government system in place it took charge of some of the work of production of goods and services for the general population. it established companies to manage the production units in a systematic way. These companies are known as Government Companies.
The Government Company responsible for a certain work is regulated by government authorities. These are usually no profit companies established by the investment of public money. Any gain obtained from the operation of such companies goes to the public fund of the government. The government tries to operate these companies consistently with the market which results in a healthy economy of the country. It is also very essential for the employment generation and inspiration for the masses to start their own businesses. Proprietorship is another type of company established by individuals without any help or group. the individual remains legally responsible for all the activities of such companies.
In recent times there has been criticism of incompetence of the authorities running the Government Companies. Some critics have also stated to completely exclude Government Companies and privatise them all which is difficult to do.
In conclusion , Government Companies are essential for a welfare state. and it helps in regulating the prices of commodities in the open market.
FAQs on Guarantee of Profit: Terms and Explanation
1. What is meant by a 'guarantee of profit' to a partner in a partnership firm as per the CBSE 2025-26 syllabus?
A 'guarantee of profit' is a special assurance given to a partner (usually a new or existing one) that they will receive a minimum fixed amount of profit from the business, regardless of their actual share calculated as per the profit-sharing ratio. If the actual share of profit is less than the guaranteed amount, the shortfall (deficiency) is paid by the other partners as per the partnership agreement.
2. What are the different ways a guarantee of profit can be given to a partner?
A guarantee of profit can typically be provided in two main ways:
- Guarantee by the Firm: In this case, all the remaining partners agree to bear any deficiency in their mutual profit-sharing ratio.
- Guarantee by One or More Specific Partners: Here, only one or a few existing partners personally give the guarantee. Any deficiency is borne exclusively by these guaranteeing partners in a pre-decided ratio or their mutual profit-sharing ratio.
3. How is the deficiency calculated and treated in the Profit and Loss Appropriation Account?
The deficiency is the amount by which a partner's actual profit share falls short of their guaranteed profit. The accounting treatment is as follows:
- First, the profit is distributed among all partners in their normal profit-sharing ratio.
- Next, the actual share of the guaranteed partner is compared with their minimum guaranteed amount.
- The deficiency (Guaranteed Amount - Actual Share) is then deducted from the share(s) of the guaranteeing partner(s).
- This deficiency amount is added to the actual profit share of the guaranteed partner to meet the minimum guarantee. This entire adjustment is shown clearly in the Profit and Loss Appropriation Account.
4. Why would a partnership firm offer a guarantee of profit to a partner?
A firm might offer a guarantee of profit for several strategic reasons. It is often used to attract a person with exceptional skills, a strong reputation, or a significant client base to join the firm as a partner. It provides them with financial security, making the offer more appealing, especially if they are leaving a stable salaried position. It can also be used to assure a minimum income for a junior partner.
5. What is the key difference in accounting when a guarantee is given by the firm versus by an individual partner?
The key difference lies in who bears the deficiency. When the guarantee is given by the firm, the deficiency is borne by all other partners in their existing profit-sharing ratio. However, when the guarantee is given by an individual partner (or a few specific partners), the deficiency is borne solely by that partner(s) and is deducted only from their share of profits.
6. What happens if the firm incurs a loss instead of a profit? Does the guarantee still apply?
Yes, the guarantee of profit still applies even if the firm incurs a loss. In this situation, the guaranteed partner must still receive their minimum guaranteed amount. The total amount to be borne by the guaranteeing partners would be the partner's share of the loss plus the full guaranteed profit amount. This combined sum is then deducted from the guaranteeing partners' capital accounts in their agreed-upon ratio.
7. What are the journal entries passed for adjusting a deficiency in a partner's guaranteed profit?
The adjustment for deficiency is typically made through a single journal entry after the initial profit distribution. The entry debits the capital or current accounts of the guaranteeing partners and credits the capital or current account of the guaranteed partner. The entry is:
Guaranteeing Partner's Capital/Current A/c ... Dr.
To Guaranteed Partner's Capital/Current A/c
(Being the deficiency in profit met by the guaranteeing partners)
