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Everything About Statutory Company (With Examples)

Taxation is not the only method the government makes money. A statutory corporation’s primary goals are to generate income and be commercially successful. As a result, they are pretty much like any other firm. What distinguishes them, the payout is how they are created and managed.

What is a Statutory Company? 

This article will walk you through and define for you what a statutory corporation is. Furthermore, it will look at how they are created and what they can achieve. You may be asking how the Corporations Act 2001 (Cth) impacts them because they are a corporation. 

What is a Statutory Company? 

A statutory corporation is formed as a result of a Special Act of Parliament. It is a business that offers valuable services to the public.

A statutory corporation is typically formed to assist people rather than the standard corporate goal of profit. The Central or State Legislature Statutory Corporation can authorize a statutory company.

Even though statutory corporations have limited liability, the limited title is not always needed. However, they are obligated to submit annual reports to the Legislature-Parliament. Among the well-known statutory firms are the following:

  • The Reserve Bank of India
  • Bank Of India ( SBI)
  • Industrial Finance Company
  • Food Corporation of India
  • Life Insurance Corporation of India
  • Although the services provided by statutory corporations vary, they are frequently established to offer a sort of public utility such as insurance, water, gas, and electricity.

Features of a Statutory Company

Statutory corporations often have the following characteristics:

  • Management: Statutory businesses are controlled and elected by a board of directors, managed and appointed by the government.
  • Accountability: Statutory corporations must answer to both the public and private legislatures. Audits are frequently used to check on responsibility.
  • Appointment: Statutory corporations have the authority to recruit and promote without the intervention of the government.
  • No interference: The controlling board may not interfere with the statutory company’s everyday operations.
  • Objectives: The business’s frequently commercial goals, and the statutory corporation is held accountable for its financial actions.

Insurance Statutory Companies

Statutory corporations are subject to a set of rules and regulations. Several of these rules depend on the sort of public service offered. The following restrictions apply to insurance-based statutory companies:

  • To stay sustainable, insurance firms must set aside a portion of their assets.
  • The money cannot be re-invested by insurance firms.
  • Voluntary reserves may be suggested or required as well.
  • The regulating authority determines the precise amount that you must withhold.

Insolvency and Statutory Reserves

Statutory corporations are expected to have financial reserves. Requiring businesses to hold back funds eliminates the risk of insolvency. The ruling body generally determines the needed quantity and is usually a minimum proportion of all deposited cash.

Using insolvency provisions, the institution can cover costs if a significant number of members want to withdraw at the same time. This is common during economic downturns or natural calamities.

Unlike other forms of statutory companies, brokerage businesses are not needed to keep funds on hand to avoid insolvency. The distinction is that brokerages payout in the form of fees rather than interest payments. A brokerage does not formally own an investor’s money.

An Overview of Statutory Mergers

Statutory mergers occur when one business decides to operate under the name of another formally. Even if one or both firms are statutory, they must nevertheless follow the regulations established by Parliament. There are two kinds of mergers:

  • Merger: Only one of the businesses survives. All assets and liabilities are transferred to the surviving firm.
  • Acquisition: Both businesses survive. One firm works under the umbrella of the parent corporation.

Because of the accompanying benefits, many businesses consider mergers. Mergers can be complicated, but the advantages frequently exceed the drawbacks. The stockholders of both firms are paid for the procedure. Shareholders have the option of receiving money or obtaining new shares in the new business.

Legal Requirements of a Statutory Merger

A few conditions must be met for a payout a statutory merger to occur:

  • Corporate law must establish conditional regulations.
  • The board of directors must approve the merger. Both committees must approve the merger of directors. An official vote must obtain this permission.

A statutory merger is a complicated process that might take months to accomplish. On the other hand, the longer timetable allows both firms to do due diligence and fully comprehend the implications of the merger. 

What is a Statutory Company? 

Concerns about share value might hinder the process even further. All stockholders have appraisal privileges and can request an evaluation to guarantee fair market value for their shares.

Benefits out of a Statutory Merger

Organizations can contemplate a statutory merger with another company to optimize financial and organizational efficiency or obtain a competitive edge. Mergers frequently result in disputes, although the advantages might outweigh the problems.

The shareholders of both firms that have gone through the M&A process are rewarded for their participation in the process. The shareholders are either (a) compensated for their shares or (b) given shares in the combined business.

Legal Requirements, Procedures & Conditions

First, state corporate law establishes the conditions for a statutory merger. Second, the merger must be approved by the boards of directors of both corporations. Third, through their voting rights, the shareholders of each firm must approve the merger.

Finally, mergers are allowed by the appropriate regulatory authorities once all legal procedures have been completed. The entire process may take months.

In the case of a merger between a parent firm and a subsidiary, a more straightforward form is conceivable. Furthermore, you should perform adequate due diligence to avoid unforeseen material responsibility.

Shareholders have the option to use their appraisal rights as well. This is a legal power that a dissident shareholder has if they object to an exceptional transaction and wishes to:

  • To have the value of your Pre-merger Corporation shares assessed; or
  • The Pre-merger Corporation will pay you the fair market value of your shares.

Merits of Statutory Corporations

The following are the primary benefits of a statutory corporation:

  • Initiative & flexibility: A statutory corporation’s operations and administration are carried out autonomously, without intervention from the government, and with its initiative and freedom.
  • Administrative autonomy: A public corporation can run its business independently and with flexibility.
  • Service motive: Parliament debates the actions of the public company. This guarantees that the public interest is safeguarded.
  • Efficient staff: Public businesses may establish their own rules and regulations for employee compensation and recruit. It can give better facilities and more appealing conditions of service to its employees to ensure that they work efficiently.
  • Professional management: The board of directors of statutory corporations comprises business professionals and government-nominated representatives of diverse organizations such as labor and consumers.
  • Easy to raise capital: The government wholly controls such businesses, so they may readily obtain the necessary cash by issuing low-interest bonds. Because these bonds are secure, the public is at ease with subscribing to them.

Demerits of Statutory Corporations

  • Autonomy on paper: The autonomy and flexibility of public businesses exist solely for the sake of the name. Ministers, government officials, and political parties frequently interfere with the running of these activities.
  • Lack of initiative: Because public businesses are not subject to competition, they are not motivated by a profit incentive. As a result, employees do not take the initiative to enhance profit and minimize loss. The government compensates for the public corporation’s losses.
  • Rigid structure: The act defines the purposes and powers of public companies, and you may only change them by modifying the law or the act. Amending the legislation is a time-consuming and challenging job.
  • Conflict of interests: The government chooses the board of directors, whose job it is to oversee and run companies. Because there are so many members, it is conceivable that their interests will collide. As a result, the corporation’s smooth operation may be jeopardized.
  • Unfair practices: A public corporation’s governing board may engage in illegal activities. It may charge an exorbitant fee to conceal inefficiency.
  • Suitability: The public company is appropriate if the following tasks are required:
  • monopolistic powers
  • Acts or statutes specify specific powers.
  • government grants regularly
  • a proper balance of public responsibility and operational autonomy

Related Questions 

1. What Is A Statutory Company Under the Companies Act 2013?

A Statutory Company is formed through a Special Act passed by the Central Government or a State Government, as the case may be. These corporations are formed to carry out a specific public project.

2. Is SBI A Statutory Company?

Yes, SBI is a statutory company in India. It’s a multinational, public sector banking and financial services statutory body that supports the country’s 2.6 trillion-dollar economy and the hopes of its large population. The Bank plays a critical role in realizing the Government of India’s Digital India objective. 

3. What Are Statutory Records Of A Company?

Statutory records are documents where a company keeps essential aspects of its operations and structure, such as its current directors. Every company in the UK is obliged by law to keep a collection of statutory books and records.

4. Does Statutory Mean Set By Law?

Statutory Laws are written Laws that are legislated by a legislative body. These laws differ from administrative and regulatory laws ratified by executive agencies or established by earlier court rulings. In a legislature setting, a bill is introduced and voted on.

5. What Is a Statutory Meeting?

A statutory meeting is the assembling of a company’s shareholders. According to Section 165 of the Companies Act, every public limited company limited by shares or guaranteed share capital must hold a statutory meeting. This meeting occurs only once in the life of a company.

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About Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.