Disadvantages of Statutory Corporation

Disadvantages of Statutory Corporation

Disadvantages of Statutory Corporation

The corporation which is created by the Act to serve some special purposes is called statutory Corporation. In spite of these advantages, statutory corporations have some disadvantages also. Disadvantages of statutory coronation are given below:

  • Ministerial intervention:

The main disadvantage of such an organization is that ministers or high officials of the country extend their undue influence in the administration of the company the ministerial meddling with the internal management and organization adversely affects the working of the organization.

  • Costly operations:

In some cases where the nature of the work is substantially commercial or manufacturing, personnel of the corporation do not give much emphasis on the cost elements and thus nuke the operations more costly. It is suitable only for a giant size business but is not suitable for small size business.

  • Monopoly:

Statutory corporations enjoy a total monopoly and the private sector cannot compete with it. This encourages monopoly & defeats the motive of statutory corporations.

  • Political influence:

It has got to function within the framework of parliamentary control and ministerial responsibility. Statutory corporations are subject to political interference & this affects the efficiency of the corporation. This often exposes the organization to some political or outside influences.

  • Clash amongst divergent interests:

The government appoints the Board of Directors and their work is to manage and operate corporations. As there are many members, it is quite possible that their interests may clash. Because of this reason, the smooth functioning of a corporation may be hampered.

  • Overcome public interest:

Sometimes the controlling authority may be in the hands of a small and unrepresentative group who may seek their own self and ignore the objectives of the public enterprise. There is often a wastage of physical, capital, and manpower resources in several cases.

  • Difficult Formation:

It is very difficult to form statutory corporations because it requires lengthy documentation, complicated formalities, and passing of statue. A corporation is said to be inflexible and insensitive to changing situations because an amendment in the Act of legislature is required if any change in objects and powers of a corporation has to be made.

  • Unfair practices:

The governing board of a public corporation may indulge in unfair practices. It may charge an unduly high price to cover up inefficiency.

  • Ignores commercial principles:

Statutory corporations may ignore the commercial principles in their work because they do not work to earn profit and do not have any fear of loss. Without these principles, inefficiency and losses can take place in a corporation.

  • Excessive public accountability:

Such corporations work with the motive to render services and not profit motive. This public accountability of a corporation acts as a stumbling block in the operational efficiency of the enterprise.

  • High tax:

These organizations are not fretted from tax and duties as like other some organizations.