A Government company is any company in which not less than 51% of the paid-up share capital is held by:
(i) the Central Government, OR
(ii) any State Government or Governments, OR
(iii)partly by the Central Government AND partly by one or more State Governments.
'Not less than 51%' means ≥51% — exactly 51% qualifies.
## Inclusion: Subsidiary of a Government Company
The definition expressly includes a subsidiary company of a Government company. Hence step-down government companies are also Government companies.
## Special Rule for Differential Voting Rights (DVR)
Where shares with differential voting rights have been issued, the expression 'paid-up share capital' shall be construed as 'total voting power'.
In other words: if DVR shares are issued, the 51% test is applied on voting power, not nominal paid-up capital. This prevents government from claiming 'Government company' status by holding 51% of low-voting shares.
## Key Points
Holding can be by Centre alone, State(s) alone, or combination — all three structures qualify.
Subsidiary inclusion makes the chain rule operate automatically.
DVR conversion is from capital → voting power, ensuring substance over form.
Worked example
### Example 1
Example 1: Central Government holds 60% of paid-up capital of A Ltd. → Government company.
### Example 2
Example 2: Maharashtra Government holds 30% and Karnataka Government holds 25% of B Ltd; together 55%. → Government company (held by State Governments together).
### Example 3
Example 3: Central Government holds 30% and Tamil Nadu State Government holds 25% of C Ltd; together 55%. → Government company (mixed Centre + State holding).
### Example 4
Example 4 – Subsidiary inclusion: Government Co. G Ltd holds 60% in X Ltd. → X Ltd is also a Government company (subsidiary of Govt co.).
### Example 5
Example 5 – DVR Trap: Central Government holds 55% of paid-up capital but those shares carry only 40% of total voting power (because DVR shares with higher voting rights were issued to private investors). → NOT a Government company — paid-up capital is read as voting power here, and only 40% < 51%.
⚠️ Common exam mistakes
Reading the threshold as 'more than 51%' — the section says 'not less than 51%', so exactly 51% qualifies.
Considering only Central Government holding — State Government alone or combined Centre + State holding also qualifies.
Forgetting that a subsidiary of a Government company is itself deemed a Government company by inclusion.
Ignoring the DVR proviso — when DVR shares exist, the 51% test is on voting power, not nominal paid-up capital.
Confusing PSU (a colloquial term) with Government company — only the statutory test in Section 2(45) governs.
Bare-Act text Section 2(45) · Companies Act, 2013 · click to expand
Section 2(45): 'Government company' means any company in which not less than fifty-one per cent. 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. Explanation: For the purposes of this clause, the 'paid-up share capital' shall be construed as 'total voting power', where shares with differential voting rights have been issued.