Statutory Company Definition: Everything You Need to Know
A statutory company definition is defined as a company that is created by a Special Act of the Parliament and it provides services of value to the public.3 min read
A statutory company definition is defined as a company that is created by a Special Act of the Parliament. It is a company that provides services of value to the public.
A statutory company can be approved by either the Central or State Legislature Statutory Company. A statutory company is usually created with the intention of serving people rather than the traditional business goal of creating profits.
Despite the fact that statutory companies have limited liability, they are not always required to utilize the limited title. They are required, however, to provide annual reporting to the Legislature-Parliament. A few well-known statutory companies include the following:
- Reserve Bank of India
- State Bank of India
- Industrial Finance Corporation
- Food Corporation of India
- Life Insurance Corporation of India
Although the services of statutory companies vary, they are often created to provide a type of public service such as insurance, water, gas, and electricity.
Features of a Statutory Company
Statutory companies tend to have the following features:
- Management: Statutory companies are managed by a board of directors that is in turn, managed and appointed by the government.
- Accountability: Statutory companies are accountable to both public and private parliament. Accountability is often inspected through audits.
- Appointment: Statutory companies can hire and promote without the influence of the government.
- No interference: The daily tasks of the statutory company cannot be interfered with by the governing body.
- Objectives: Objectives of the company are often commercially based, and the statutory company holds liability for its financial decisions.
Insurance Statutory Companies
Statutory companies must follow specific rules and regulations. Many of these regulations are based on the type of public service that is provided. Insurance based statutory companies have the following regulations:
- Insurance companies must hold back a percentage of assets to remain solvent.
- Insurance companies are unable to re-invest the funds.
- Voluntary reserves may also be recommended or required.
- The exact amount required to be withheld depends on the governing body.
Insolvency and Statutory Reserves
Financial reserves are required with statutory companies. Requiring companies to hold back finances prevents the possibility of insolvency. The amount required is usually set by the governing body and is usually a minimum percentage of all deposited funds. With insolvency requirements, the institution is able to cover costs in the event that a large number of members attempt to withdraw at the same time. This often occurs during times of economic concern or natural disasters.
Brokerage firms, unlike other types of statutory companies, are not required to hold back finances to prevent solvency. The difference is that brokerages payout through fees and not with interest payments. A brokerage does not officially own an investor's funds.
An Overview of Statutory Mergers
Statutory mergers occur when one company chooses to officially operate under another company. If one or both of the companies are statutory, they still need to operate under the governing rules of the Parliament. There are two types of mergers available:
- Merger: Only one of the companies survives. All of the assets and liabilities become the property of the surviving company.
- Acquisition: Both companies survive. One company operates under the parent company.
Many companies entertain the idea of mergers because of the associated advantages. Mergers can be complex, but the benefits often outweigh the complexities. Both companies' shareholders are compensated for the process. Shareholders can choose between payment or acquiring new shares in the new company.
Legal Requirements of a Statutory Merger
There are a few requirements that must be present in a statutory merger situation:
- The conditional laws must be set by the corporate law.
- Both sets of board of directors must approve of the merger. This approval must take place with an official vote.
- The merger must be approved by the board authorities.
Because a statutory merger is a complex process, it can take months to fully complete. However, the extended timeline gives both companies the chance for due diligence and to fully understand what the merger means. Concerns about share value could further slow down the process. All shareholders have appraisal rights and can order an appraisal to ensure that they receive fair market value for their owned shares.
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