Characteristics of a public limited company
Listed below are some characteristics of publicly listed companies:
- Separate legal identity: A public limited company is a distinct legal entity, separate from its shareholders. This ensures the company can own assets, incur liabilities, and operate independently of its members.
- Limited liability protection: One of the most important features is limited liability, which means shareholders are only liable up to the value of the shares they own. Their personal assets remain protected even in the event of company losses or debts.
- Minimum number of members: At least 7 members are required to start a public company. There is no maximum cap on the number of shareholders.
- Directorship requirements: A minimum of 3 directors is needed, with a maximum limit of 12. Each must hold a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs.
- Paid-up capital: As per the Companies Act, 2013, a minimum paid-up capital of Rs. 5,00,000 is mandatory for a public company to commence operations.
- Memorandum of Association (MOA): The MOA is a crucial document that outlines the company’s objectives and scope of business. It must be submitted to the MCA during the registration process.
- Certificate of commencement: Unlike a private company, which can start operations after receiving its Certificate of Incorporation, a public company must also obtain a Certificate of Commencement before doing business.
- Prospectus issuance: A public company can issue a prospectus to invite the general public to subscribe to its shares. This document details the company’s operations and share offer terms, particularly for an IPO.
- Minimum subscription rule: A minimum of 90% of the issued shares must be subscribed to proceed with share allotment. Failure to do so may halt business operations.
- Share transferability: Shares in a public limited company are easily transferable. This enhances liquidity for shareholders and simplifies exit strategies.
- Name requirement: Every public limited company must include the suffix “Ltd.” at the end of its registered name to signify its status.
- Borrowing capacity: Public companies enjoy extensive borrowing capabilities. They can raise funds through equity, preference shares, secured and unsecured debentures, or borrowings from banks and financial institutions.
- Voluntary association: Investors can freely buy or sell shares, making it a flexible form of business association.
- Minimum subscribers: The initial 7 shareholders who subscribe to the Memorandum of Association form the founding base of the company.
Types of public limited company
- Listed company
Shares of a listed public limited company are actively traded on stock exchanges such as the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), enabling transactions among the general public, institutional investors, and financial entities. This listing enhances liquidity, allowing shareholders to easily convert their shares into cash. Listed companies are subject to stringent regulatory requirements, including regular disclosures and public scrutiny, ensuring transparency and investor protection.
Check your pre-approved business loan offer if your listed company seeks quick capital for growth or compliance requirements.
- Unlisted company
An unlisted public limited company does not trade its shares on any stock exchange, which limits the ease of share transfer compared to listed counterparts. This status reduces regulatory obligations and public scrutiny, giving the company more autonomy over its operations and share transactions. Unlisted companies attract more shareholders compared to private companies, without the complexities of full public trading regulations.
How do public limited companies work?
- Issuance of shares: PLCs in India can issue shares to the public through stock exchanges.
- Governance: Governed by a board of directors who are elected by the shareholders.
- Regulatory compliance: Subject to regulations from the Securities and Exchange Board of India (SEBI).
- Dividend payments: Profits can be shared with shareholders through dividends.
- Public disclosure: Must disclose financial results and other significant developments to ensure transparency.
Requirements of a public limited company
- Minimum share capital: Requires a minimum paid-up capital of ₹5 lakhs.
- Shareholders: At least seven shareholders are required.
- Directors: A minimum of three directors is necessary.
- Company secretary: Appointment of a qualified company secretary is mandatory.
- Statutory audit: Annual audit of accounts is compulsory.
- Public filings: Must file annual returns and financial statements with the ROC.
Advantages and disadvantages of a public limited company
Advantages:
- Enhances brand visibility: Being listed and publicly known increases overall brand awareness and recognition.
- Builds credibility and trust: Stock market listing boosts the company’s reputation and prestige, creating a positive impression among investors and the public.
- Improves customer perception: A sense of transparency due to public disclosures can enhance how customers view the brand.
- Attracts strategic partnerships: Availability of public records can make the company more appealing to potential business partners.
- Enables capital generation: The company can raise funds by issuing shares to the public.
- Supports business growth: The capital raised can be reinvested into expanding operations and exploring new opportunities.
- Aids in debt management: Funds raised through equity can also be used to repay existing debts and improve the balance sheet.
Disadvantages:
- Board structure requirements: A public limited company (PLC) must have at least two directors, while a private limited company (Ltd) can operate with just one.
- Mandatory annual general meetings: A PLC is legally required to hold an Annual General Meeting (AGM), unlike a private limited company.
- Qualified company secretary: In a PLC, the company secretary must meet formal qualification standards, whereas this is not mandatory for private limited companies.
- More stringent compliance: Public companies face tighter regulations from both Companies House and HMRC.
- Shorter tax deadlines: HMRC imposes shorter timelines for public companies to meet tax obligations.
- Open shareholding: Shares in a PLC can be purchased by any member of the public, potentially leading to a dilution of the original company vision.
- Wider distribution of control: With more shareholders, a PLC becomes more exposed to external influence and reduced centralised decision-making.
Procedure for registration of a public limited company
Registering a public limited company involves several steps and requirements. Here’s a simplified guide:
Step 1: Minimum Shareholders and Directors: You need at least 7 shareholders and 3 directors to start a public limited company.
Step 2: Authorised Share Capital: Ensure a minimum authorised share capital of Rs. 1 lakh is ready.
Step 3: Digital Signature Certificate (DSC): One director must have a Digital Signature Certificate (DSC) for submitting identity and address proofs.
Step 4: Director Identification Number (DIN): All directors need a Digital Identification Number (DIN).
Step 5: Company Name: Choose a name compliant with the Company Act and Rules.
Step 6: Documents: Prepare the Memorandum of Association (MOA), Articles of Association (AOA), and Form DIR-12.
Step 7: Registration Fees: Pay the required fees to the Registrar of Companies (ROC).
Following these steps ensures compliance and sets up your public limited company legally.
Documents required for incorporating a public limited company
To incorporate a public limited company, several essential documents are required:
- Proof of Identity and Address: For all shareholders and directors, including PAN numbers.
- Utility Bill: Proof of the proposed registered office's address.
- NOC: A No Objection Certificate from the landlord of the office premises.
- Director Identification Number (DIN): All directors must have a DIN.
- Digital Signature Certificate (DSC): Directors need a DSC for online filings.
- Memorandum of Association (MOA): Defines the company's objectives and operations.
- Articles of Association (AOA): Outlines the company's internal rules and management procedures.
These documents ensure compliance with legal requirements for establishing and operating a public limited company.
Public limited company v/s private limited company
Some of the notable differences between Public Limited Companies and Private Limited Companies are:
Parameter
|
Public Limited Company
|
Private Limited Company
|
Shareholders
|
Minimum of 7, no maximum
|
2-200
|
Capital Raising
|
Can issue shares to the public and raise capital through public investment
|
Limited to private placements and cannot publicly list shares
|
Regulatory Scrutiny
|
High due to public trading
|
Less compared to public companies
|
Financial Disclosure
|
Required to publish detailed financial statements publicly
|
Limited disclosure requirements
|
Share Transferability
|
Shares can be freely traded on stock exchanges
|
Share transfers are restricted and need approval from other shareholders
|
How to invest in a public limited company
- Stock exchanges: Buy shares through platforms like the Bombay Stock Exchange or the National Stock Exchange.
- Mutual funds: Invest in funds that include PLC shares.
- SIPs and DRIPs: Use Systematic Investment Plans or Dividend Reinvestment Plans to gradually invest.
- Direct purchases: Some companies offer direct purchase plans to investors.
- Financial advisors: Seek advice from financial experts before investing.
Examples of public limited companies
- Tech giants: Infosys, TCS
- Automobiles: Tata Motors, Maruti Suzuki
- Energy sector: Reliance Industries, ONGC
- Consumer goods: Hindustan Unilever, ITC Limited
- Banking: HDFC Bank, State Bank of India
Who owns a public limited company?
Ownership of a public limited company in India is distributed among the individual and institutional shareholders according to the percentage of shares they hold. The control of the company, however, is often in the hands of the board of directors who are elected by the shareholders.
Features of public limited companies
- Separate legal entity: Distinct from its members.
- Perpetual succession: Continuity assured despite any change in membership.
- Trade on stock exchanges: Freely transferable shares on open markets.
- Transparent management: Regular disclosure of business operations to shareholders.
- Strict regulatory oversight: Governed under the SEBI and Companies Act.
When should business become a public limited company?
Businesses should consider becoming a public limited company when they are well-established and have a strong management team in place. While there's no requirement for businesses to go public, those that do are often capable of managing the risks associated with being publicly traded. Becoming a public limited company allows businesses to raise capital from the public through stock offerings on the stock exchange, which can fuel expansion and growth. It also enhances the company's visibility and credibility in the market, attracting potential investors and facilitating mergers or acquisitions. However, the decision should be carefully weighed against the regulatory requirements and increased scrutiny that come with being a public company.
How to start a public limited company in India?
Here are the simple steps to start a company in India:
- Check the availability of the company name.
- Apply for Digital Signature Certificate (DSC) and Director Identification Number (DIN).
- File applications for Memorandum of Association (MoA) and Articles of Association (AoA).
- Apply for PAN and TAN of the company.
- Obtain the certificate of incorporation after receiving PAN and TAN.
- Open a current account in the company's name.
- Submit the application form along with necessary documents.
Conclusion
Public limited companies are pivotal to India's economic architecture, offering a means for businesses to access capital markets and enhance transparency. They provide investors with opportunities for ownership in diverse sectors while promoting rigorous corporate governance. However, the complexity of compliance and operational scrutiny that comes with a PLC status demands careful consideration from business leaders and investors alike. Secured business loans can provide the necessary capital for a PLC to expand its operations, launch new products, or enter new markets without needing to issue more shares and potentially dilute existing shareholders' equity. To make informed decisions about financing, it's helpful to understand the applicable business loan interest rate.
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