A Public Limited Company under Company Act 2013 is a company that has limited liability and offers shares to the general public. It’s stock can be acquired by anyone, either privately through (IPO) initial public offering or via trades on the stock market. A Public Limited Company is strictly regulated and is required to publish its true financial health to its shareholders.
Characteristics of Public Limited Company
- DirectorsAs per the provisions of the Companies Act, 2013 to start a public limited company, a minimum of 3 directors are required and there is no restriction on the maximum number of directors.
- Limited Liability
The liability of each shareholder is limited. In simple words, a shareholder of a public limited company isn’t personally responsible for any loss or debts of the company for any amount greater than the amount invested by them; contrary to partnerships and sole proprietorships, where the partners and business owners are jointly and severally liable for the debts of the business. However, this characteristic of a public limited company does not offer immunity to the shareholders. The shareholders will be held responsible for their own illegal actions.
- Paid up capital
A public limited company is required to have a minimum paid-up capital of Rs 5 lakh or such higher amount as prescribed under the act.
A prospectus is a comprehensive statement of the affairs of the company issued by a public limited company for its public and there is a requirement under the Act for public limited companies to issue a prospectus. However, there are no such provisions for Private Limited Companies. This is because private limited companies cannot invite the public to subscribe for their shares.
It is a compulsory requirement under the Companies Act, 2013 for all the public companies to add the word ‘limited’ after their name.
Advantages of Public limited companies
Following are the advantages of forming a public limited company:
- More capital
Shares are offered to the general public at large i.e. anyone can invest in a public limited company. Hence, improves capital of the company.
- More attention
Being listed on a stock market ensures that mutual funds, hedge funds and other traders take note of business of the company. This may result in better business opportunities for the Public Limited Company.
- Spreading risk
Since the shares are sold to the public at large the unsystematic risk of the market is spread out.
- Growth and expansion opportunities
Due to less risk, there is a perfect opportunity for growing and expanding the business by investing in new projects from the money raised through shares.
Requirements/Process for registration of Public Limited Companies
There are various rules and regulations prescribed under the companies act, 2013 for the formation of a public limited company. Here is what you should keep in mind when registering a public limited company:
- Minimum 7 shareholders are required to form a public limited company
- Minimum of 3 directors is required to form a public limited company
- The minimum share capital of Rs. 5 lakhs is required
- Digital signature certificate (DSC) of one of the directors is needed while submitting self-attested copies of identity and address proof
- Directors of the proposed company will need a DIN
- An application is required to be made for the selection of the name of the company
- An application comprising the main object clause of the company is to be made. This object clause will define what a company will pursue after its incorporation
- Submission of the application to ROC along with the required documents like MOA, AOA, duly filled Form DIR – 12, Form INC – 7 and Form INC – 22 is needed
- Payment of the prescribed registration fees to the ROC is required
- After obtaining an approval from the ROC, the company should apply for the ‘certificate of business commencement.’