Explore the essential role and benefits of Public Limited Companies in India as well as how business loans can support their growth and operational stability.
A public limited company (PLC) is a business owned by shareholders and managed by directors. Unlike a private company, a PLC can offer its shares to the public. However, being public comes with additional responsibilities, such as more extensive tax administration and the requirement to make financial reports publicly available. This transparency allows potential investors to make informed decisions before investing. A PLC is also listed on the stock exchange, meaning it must be more open and transparent about its operations compared to a private company.
Public Limited Companies (PLCs) represent a crucial structure in the business world. These entities are allowed to sell shares to the public and trade on the stock exchange, making them a pivotal force in the global economy. The nature of PLCs demands transparency and adherence to rigorous governance standards, which in turn builds significant public trust and corporate credibility.
Securing a business loan can be a strategic move for a PLC looking to expand operations or enhance infrastructure without diluting shareholder value through additional share issues. Such financial support helps maintain liquidity and stabilises cash flow, enabling more consistent investment in growth initiatives and operational improvements. Furthermore, business loans can also assist in bridging the gap during lean periods, ensuring that the PLC can continue to operate effectively despite market volatility or economic downturns.
What is a public limited company?
A public limited company (PLC) in India is a business entity that is allowed to offer its shares to the public. As per Indian law, these companies must register with the Registrar of Companies and comply with the regulations of the Companies Act, 2013. PLCs are subject to stringent corporate governance norms and disclosure standards to protect the interests of the shareholders.
Characteristics of a public limited company
Listed below are some characteristics of public listed companies:
- Directors: A public limited company (PLC) requires a minimum of 3 directors and can have up to 15 directors under the Companies Act, 2013.
- Limited liability: Shareholders of a public limited company benefit from limited liability, which means they are not personally liable for debts of the company beyond the amount of their investments.
- Prospectus: PLCs must issue a prospectus when offering shares to the public, detailing company affairs, unlike private limited companies.
- Share capital: While there's no minimum paid-up capital requirement, a PLC must have an authorised share capital of at least Rs. 1 lakh.
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. - 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:
- Access to capital: Ability to raise funds from the public and financial institutions.
- Limited liability: Shareholders are liable only to the extent of their shareholding.
Disadvantages:
- Regulatory burden: High level of legal compliance and public disclosure requirements.
- Market pressures: Share prices can be volatile, and company performance is closely monitored by investors.
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.
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