Business StudiesCBSE Class 11 · Private, Public and Global Enterprises

Departmental Undertakings, Statutory Corporations and Government Companies Class 11 Business Studies

Q: Is a subsidiary of a government company a government company?

Yes, it is included in the definition.

Q: Do departmental undertakings have separate legal status?

No; they cannot be sued separately from the government.

Updated 17 October 2026 · Fact-checked

Public sector enterprises take three forms: a departmental undertaking (run as a department of a ministry and financed from the treasury), a statutory corporation (created by a special Act, a separate body corporate) and a government company (registered under the Companies Act with at least 51% of the paid-up capital held by the government). Flexibility is least in departments and greatest in government companies.

Notice that flexibility rises from departmental undertaking to statutory corporation to government company, with 51% government shares marking the company.

Illustration drawn for QuestionBuddy.

Understand Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11)

Private and public sector. The private sector is owned by individuals or groups; the public sector is owned, managed and controlled by the central government, state governments or local bodies, wholly or partly.

Departmental undertaking. The oldest form: run as a department of a ministry and treated as an extension of the government. Financed from annual appropriations of the treasury; revenue goes to the treasury; accounting and audit as for other departments; staffed by civil servants; no separate legal entity; under direct control of a ministry. Suited to activities where government control is essential for security or strategic reasons and secrecy is needed. Merits: effective parliamentary control, high accountability, revenue to the treasury. Limitations: lack of flexibility, red tape, political interference, lack of initiative.

Statutory corporation. Created by a special Act of Parliament or a state legislature that defines its powers, functions and relations with ministries (examples in NCERT: Life Insurance Corporation of India, Food Corporation of India, Airports Authority of India, Reserve Bank of India). Features: wholly owned by the state; a body corporate (can sue and be sued, enter contracts, own property); financially independent (borrows and uses its revenue); employees are not civil servants and their terms are set by the Act; not subject to the usual government accounting and audit rules; managed by a board appointed by the government. Merits: independence and flexibility, quick decisions, a framework of objectives, growth from its own surplus. Limitations: in practice little operational flexibility, government and political interference, and any change in powers needs an amendment of the Act.

Government company. A company in which not less than 51% of the paid-up share capital is held by the central government, state government(s) or both, including a subsidiary of a government company (Companies Act, 2013). Examples: Bharat Heavy Electricals Ltd, Steel Authority of India Ltd, Hindustan Aeronautics Ltd. Features: registered under the Companies Act (a separate legal entity); governed by its own memorandum and articles; board with mostly government nominees; employees appointed under company rules; exempt from departmental accounting and audit rules, the auditor being appointed by the government on the advice of the Comptroller and Auditor General (CAG); funds from government and private shareholders. Merits: easy to form, autonomy and flexibility, can compete in markets, private participation possible. Limitations: Companies Act provisions not always followed, evasion of direct accountability to Parliament, management in government hands.

Basis	Departmental undertaking	Statutory corporation	Government company
Formation	Government order	Special Act	Companies Act registration
Legal status	No separate entity	Body corporate	Separate legal entity
Finance	Government treasury	Government capital; borrows and uses own revenue	Government (at least 51%) and private shareholders
Management	Civil servants under a ministry	Board appointed by government	Board, mostly government nominees
Employees	Government servants	Own employees under the Act	Own employees under company rules
Audit	As government departments	Not under government rules	Auditor appointed on CAG's advice
Flexibility	Least	More	Most

Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11): key facts

Formation: departmental undertaking by government order
statutory corporation by special Act
government company by Companies Act; Three forms of public enterprise.
Government company: at least 51% of paid-up capital with government
includes subsidiaries
share held / paid-up capital x 100; Test with percentages.
Legal status: departmental no separate entity
corporation body corporate
company separate legal entity; Corporation and company can sue and be sued.
Flexibility: least in departmental undertaking
more in statutory corporation
most in government company; Employees of the last two are not civil servants.

How to answer Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11) questions

To identify the form, check how it was created and who owns the shares.

1If it is a department of a ministry financed from the treasury, it is a departmental undertaking.
2If a special Act created it and the state owns it wholly, it is a statutory corporation.
3If it is registered under the Companies Act, compute government holding / paid-up capital x 100; at least 51% makes it a government company.
4Match the answer with a table basis: legal status, finance, management, employees, audit, flexibility.
5Add the merit or limitation that the question asks for.

Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11) in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

A new airport body

Suppose Parliament passes a special Act creating an authority to run airports, owned wholly by the government, with its own board and staff who are not civil servants.

Which form is this?

Try it first, then show the solutionSolution

It is created by a special Act of Parliament.
It is wholly state-owned and a body corporate, which is a statutory corporation.

Answer: A statutory corporation.

Memory hook: Special Act means statutory corporation.

Tricks to remember Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11)

Short memory aids. Say each one aloud once, then use it on a question the same day.

Order, Act, Company
Department by order, corporation by Act, company by registration.
Use it when: Formation.
51 and it is government
At least 51% government capital makes a company a government company.
Use it when: Numericals.
Flexibility ladder
Department < corporation < company.
Use it when: Comparisons.

Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11): solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: 51 per cent rule · 1 mark · MCQBoard level

A company is a government company if the government holds
(a) at least 26% of its paid-up capital
(b) at least 51% of its paid-up capital
(c) exactly 100% of its paid-up capital
(d) any share of the capital

Try it first, then show the solutionSolution

A government company has not less than 51% of its paid-up share capital held by the central or state governments or both.

Answer: (b) at least 51% of its paid-up capital

Example 2: Features of a statutory corporation · 3 marks · Short answerBoard level

State any three features of a statutory corporation. (3 marks)

Try it first, then show the solutionSolution

It is set up under a special Act of Parliament or a state legislature and wholly owned by the state.
It is a body corporate: it can sue and be sued, enter contracts and own property.
Its employees are not civil servants and it is not subject to the usual government accounting and audit rules; it is managed by a board appointed by the government (any three).

Answer: Special Act, body corporate, employees not civil servants.

Example 3: Classify the enterprise · 4 marks · Short answerHarder board level

Identify the form of public enterprise in each case. (4 marks)
(a) Created by a special Act of Parliament; employees are not civil servants.
(b) A company in which the government holds 60% of paid-up capital.
(c) A department of a ministry financed from the treasury.
(d) A company with a paid-up capital of 500 crore in which the government holds 240 crore.

Try it first, then show the solutionSolution

(a) Statutory corporation.
(b) Government company (60% is above 51%).
(c) Departmental undertaking.
(d) Government holding = 240/500 x 100 = 48%, which is below 51%, so it is not a government company.

Answer: (a) Statutory corporation (b) Government company (c) Departmental undertaking (d) Not a government company (48%)

Example 4: Which form? · 5 marks · Case-basedHOTS / competency

Case: The government wants to set up (i) a unit making strategic defence items where secrecy is essential, (ii) an insurance body with special powers given by law but with operational independence, and (iii) a steel company that competes with private firms and may take private shareholders. Choose the most suitable form for each and justify. (5 marks)

Try it first, then show the solutionSolution

(i) A departmental undertaking: it suits strategic and security activities where government control and secrecy are essential.
(ii) A statutory corporation: it is created by a special Act that gives it powers and a separate legal status with financial independence and flexibility.
(iii) A government company: it is registered under the Companies Act, has the most flexibility, can compete in the market and allows private shareholders.

Answer: (i) Departmental undertaking (ii) Statutory corporation (iii) Government company

Example 5: Merits and limitations · 4 marks · Short answerHarder board level

State two merits and two limitations of a government company. (4 marks)

Try it first, then show the solutionSolution

Merits: easy to form because only the Companies Act is needed; autonomy and flexibility in management; it can compete in markets; private participation is possible (any two).
Limitations: the Companies Act provisions are not strictly followed because the government is the main shareholder; it escapes direct answerability to Parliament; management is in government hands, so autonomy is limited (any two).

Answer: Easy formation and flexibility; limited autonomy and weaker accountability.

Where students lose marks in Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11)

The slips examiners see most often, and what to write instead.

Mistake: Calling a statutory corporation a company
Mixing the forms.
Wrong working
A statutory corporation is registered under the Companies Act
Right working
It is created by a special Act; a government company is registered under the Companies Act
Do this: Act versus Companies Act.
Usually costs: 1 mark
Mistake: Saying employees of a corporation are civil servants
Confusing with a department.
Wrong working
Staff of a statutory corporation are government servants
Right working
They are not civil servants; their terms are set by the Act
Do this: Civil servants only in departments.
Usually costs: 1 mark
Mistake: Using 50% as the test for a government company
Remembering a majority.
Wrong working
Government holds 50%, so it is a government company
Right working
It needs not less than 51%
Do this: Use 51%.
Usually costs: 1 mark

Exam tips

Give two examples of each form from NCERT.
Present the comparison as a table with at least five bases.
State the 51% rule and the role of the CAG in appointing the auditor.
Link departmental undertakings with security and strategic activities.

Practice questions on Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11)

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
A statutory corporation is created by
(a) a government order
(b) a special Act
(c) registration under the Companies Act
(d) a decision of the board
Hint
Parliament or a state legislature.
Answer
(b) a special Act
Q2 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Employees of a departmental undertaking are government servants.
Reason (R): A departmental undertaking is run as a department of a ministry and is treated as an extension of the government.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Part of a ministry.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q3 · 4 marks · Short answerHarder board level
Compare a departmental undertaking and a government company on formation, legal status, employees and flexibility. (4 marks)
Hint
Use the table.
Answer
Formation: a departmental undertaking is set up by a government order; a government company is registered under the Companies Act. Legal status: no separate legal entity versus a separate legal entity. Employees: civil servants versus the company's own employees under company rules. Flexibility: least in a departmental undertaking and most in a government company.
Q4 · 4 marks · Short answerHarder board level
A company has a paid-up capital of 800 crore. The central government holds 300 crore, a state government holds 120 crore and private shareholders hold the rest. Is it a government company? Find the private holding. If the government reduces its holding by 20 crore, what is the position? (4 marks)
Hint
Add the two government holdings.
Answer
Government holding = 300 + 120 = 420 crore = 420/800 x 100 = 52.5%, which is at least 51%, so it is a government company. Private holding = 800 - 420 = 380 crore. After a reduction of 20 crore the government holds 400 crore = 50%, which is below 51%, so it would cease to be a government company.
Q5 · 5 marks · Case-basedHOTS / competency
Case: A new Port Authority is created by a special Act of Parliament and is wholly owned by the government. It has its own board and employees, raises funds from the market, and can sue and be sued. Critics say ministers still direct its major decisions. (5 marks)
(i) Name its form and give two features shown. (2)
(ii) State one merit. (1)
(iii) State two limitations seen in the case or in general. (2)
Hint
Special Act and board.
Answer
(i) Statutory corporation; it is a body corporate (can sue and be sued) and is financially independent (raises funds). (ii) Independence and flexibility in working, with quick decisions. (iii) Government and political interference in major decisions, and little operational flexibility in practice; any change in its powers needs an amendment of the Act.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Which form is the oldest?Show answer
The departmental undertaking.
2.What percentage makes a government company?Show answer
Not less than 51% of paid-up capital.
3.Name two statutory corporations.Show answer
Life Insurance Corporation of India and Food Corporation of India (also Airports Authority of India, Reserve Bank of India).
4.Who advises on the auditor of a government company?Show answer
The Comptroller and Auditor General (CAG).
5.Which form has the most flexibility?Show answer
The government company.

Departmental Undertakings, Statutory Corporations and Government Companies Compared (CBSE 11): frequently asked questions

Is a subsidiary of a government company a government company?

Yes, it is included in the definition.

Do departmental undertakings have separate legal status?

No; they cannot be sued separately from the government.

Which Act governs government companies?

The Companies Act, 2013.