Meaning of Public Limited Company
Public limited company refers to the voluntary association of people who come together for carrying out a business together and enjoys limited liability. It is simply an artificial person created by law who have distinct identity from its members. Public limited company is listed on stock exchange where its shares are traded for offering them to general public. Such companies are fully regulated and governed in accordance with strict set of rules, regulations and laws. The capital is raised by company via offering its shares to people who on purchasing and subscribing to such shares are termed as the members of company. These shares are free transferrable by shareholders without any need of prior consent either from company or other shareholders.
A minimum of seven members are required for incorporation of such companies however there is no such limit on maximum number of members. Public limited company are headed by board of directors which are selected by shareholders of company in annual general meeting. These directors are responsible for framing all key policies and properly implementing them in order to ensure better profitability of company.
Characteristics of Public Limited Company
Various characteristics of public limited company can be well-understood from points given below: –
- Separate legal entity: A public limited company has a separate legal existence from its owners. It is treated as an artificial person in eye of law. The company can be sued or can sue other person in court on legal matters.
- Perpetual succession: Public limited company have perpetual succession which means that they keep continuing for an indefinite period of time. Its functioning is not affected and independent of death, insolvency or bankruptcy of its members.
- Limited liability: The liability of shareholders of public limited company is limited to amount of shares held by them. Personal assets of shareholders are not liable for charge against any loss or debt of company.
- Number of members: Every public limited company is required to have a minimum of 7 shareholders for its registration. There is no limit on maximum number of shareholders and can have as many its share capital can accommodate.
- Paid up capital: There is a minimum limit prescribed of rupees five lacs as paid-up capital for public limited company. Such limit is decided by corporate law of country i.e., company act in our country.
- Transferable shares: The shares of public limited company are free transferrable without any limits from one shareholder to another. They are brought and sold on stock exchanges where they can be easily transferred among members.
- Prospectus: Public limited companies are mandatory required as per the law to issue prospectus for going public. It is a detailed statement which shows the present and future plans of company through which people can easily decide their investment decisions easily.
- Headed by Board of directors: These companies are led by the team of board of directors which are chosen by members of company in its annual general meeting. There is a minimum limit of 3 directors for such companies and there are no restrictions on maximum limit.
- Name: Public limited companies contains the word “limited” at the end of their name. It is a mandatory requirement for these companies as per the provisions of companies act 2013.
- Aided by law: It is completely regulated and operated as per the corporate law of country. In India, all public limited companies need to follow the guidelines prescribed by Companies Act, 2013.
- Minimum subscription: Public limited company has a condition of minimum subscription of at least 90% of total shares issued by them. Such number of shares need to be subscribed by public within the particular period of time.
Incorporation of Public limited company
Incorporation of public limited company is very lengthy procedure and require lots of formalities. The various requirements for incorporation of such type of companies are as discussed below: –
Eligibility: The setting up of a public limited company has following eligibility criteria.
- Minimum Seven People- A public limited company need a minimum of seven members for its incorporation. These members can become shareholders or directors or even both for the company.
- Unique Name- For registration of trademark, every PLC must have an exclusive name that is not identical to any other company’s name.
- No minimum capital- There is no limit of minimum capital for starting a public limited company. But the minimum share capital needed is 5 lacs including both authorized and subscribed capital.
- One Resident Director- It is must to have one director who is a resident of India out of three directors or more.
Documents required: There are various set of documents needed by PLC as a proof for stating the identities of its directors, address proof of directors and registered office of business and many more which are discussed in detail as given below: –
- Identity proof- Directors of company need to be disclose their identity by providing: – 1. one identity proof like Aadhar card, voter id, DL or passport 2. Two photographs of passport size 3. PAN card for nationals of India and passport for foreigners 4. Proof of nationality for foreign nationals 5. Resolution of the board of company
- Address proof- Documents like electricity bill, bank statement, telephone or mobile bill are provided as address proof for directors.
- Registered office proof: In order to proof the address of registered office of company, following documents are provided: 1. NOC from landlord 2. Xerox of electricity bill, gas or telephone bill not older than two months.
Procedure of registration for Public Limited Company
There are eight steps involved in the registration procedure of these companies which are listed below: –
- Reservation of name: First of all, an approval of name is to be taken under the companies act, 2013. This approval has a validation of 20 days from the date of approval.
- Digital signature certificate of Director: A digital signature certificate (DSC) of director and shareholders is required for supporting signatures in order to fill up an online application form of public limited company. Such certificate is attained by filling an DSC application form along with proof of identity, address and photos of the respective signatory.
- Obtaining of Director identification number: A DIN application form needs to be filed by directors which is attested by CA, CMA or CS in order to attain this identification number. A Director identification number provides the right to become official director in India which is allotted by Registrar of Companies (ROC).
- Approval from other authorities: An applicant is required to take clearance from different authorities or regulatory bodies depending upon nature of business or type of work they are going to conduct. These authorities comprise of ministry of State or Central government, respective department, regulatory body or appropriate authority.
- Submission of documents: Various documents need to be submitted along with the application form for incorporation of PLC. These are Article of association, Memorandum of association, affidavits and declarations. All of them are provided to Registrar of companies for the purpose of incorporation.
- Incorporation certificate: The certificate of incorporation is a registration certificate which is issued to company on incorporation. It is issued by registrar of companies once application and documents are properly inspected and found right for approval.
- Company’s PAN and TAN: Applicant applies for permanent account number and Tax deduction & collection account number simultaneously with the registration certificate. These number are mentioned in the certificate of incorporation.
- Opening Bank account: At last, the company need to open a current account with any bank. A certificate of incorporation and other documents are submitted to bank for opening of such account.
Advantages of Public limited Company
Various advantages of public limited company are as follows: –
- More capital: Public limited companies can raise high amount of funds significantly by offering shares among large number of people. They have increased ability of raising capital as shares are traded over stock exchange where any one makes an investment into company securities.
- More attention: A business is more prominent and famous when its shares are listed on a recognized stock exchange. They are easily able to grab the attention of mutual funds, hedge funds and other type of traders for investment purposes.
- Risk spreading: Spreading of risk is also another major advantage offered by public limited company. There are large number of people who own the shares of company; therefore, any unsystematic risk of market is wide spread.
- Expert board of directors: The public limited companies are led by a group of talented and expert directors. Such people posses’ better abilities of framing right policies and quality management of company affairs.
- Additional capital: These companies can easily fulfil their requirements of additional capital for business by going for an initial public offering (IPO).
- Tax efficient: PLC enjoys more tax benefits as compared to other type business. These benefits are in the form of deductible costs and various other allowances. A company is saved from paying high amount of taxes by paying off corporation tax.
- Easy trading of shares: The shares of PLC are easily tradeable as they can be brought an sold in seconds over the stock exchanges. It makes trading more convenient for investors and shareholders.
- Limited liability: The members of company enjoys limited liability to the extent of their investment value in shares of company. The personal assets of shareholders are not liable to pay for the company’s debt in case of bankruptcy and insolvency.
Disadvantages of Public Limited Company
The limitations of public limited company are discussed in points below: –
- High costs: Setting up of public limited company require amount of costs in comparison to other type of business. There is a requirement of large cost and time for going public by company. It needs to prepare reports, put its affairs in order and make all disclosures as needed by SEBI guidelines for making an IPO.
- Loss of ownership: When a company goes public by selling shares among people, its losses the owner’s possession. The lack of ownership results in losing the power of making decisions of company.
- More regulations: The public limited company are bound to follow more rules and regulations. They need to strictly abide by the laws framed by corporate house which is a hefty task.
- Slow decisions: The decision making in PLC is very slow as every decision need to pass among the group board of directors for getting final approval. The board of directors are the most powerful stockholders who hold various debates and voting for taking major decisions.
- Enhanced reporting requirements: The PLC are required to completely disclose about their financial health among public to assure a high level of transparency.